Director experience with acquisitions improves firm performance

Jan 07, 2009

A new study in Strategic Management Journal examines how the nature of outside directors' prior experience, and resulting expertise, will influence the performance of a firm's performance. Results show that this past experience and expertise will have positive effects on the firm's acquisitions.

Michael L. McDonald, James D. Westphal, and Melissa E. Graebner developed a conceptual framework contesting that firms make higher quality acquisition decisions when their outside directors have experience in decision making regarding acquisitions that are similar to the ones that are being pursued by the firm.

Their theoretical model predicted that when the firm's outside directors had experience with acquisitions in the same product markets as those being pursued by the firm, the firm made better acquisition decisions.

In addition, a firm's related acquisitions would perform better to the extent that outside directors had experience in making related acquisitions, and that a firm's unrelated acquisitions would be of higher quality to the extent that outside directors were experienced in making unrelated acquisitions.

"The general principles of our theory might be extended to consider how other aspects of outside directors' prior experiences impact the relative success of other kinds of focal firm strategic actions," the authors conclude. "Board independence from management only leads to better acquisition decisions to the extent that outside directors have relevant prior acquisition experience. Conversely, directors' relevant prior experience has more positive effects on acquisition performance to the extent that they are independent from management."

Source: Wiley

Explore further: Was it unethical to hoax the world about chocolate as a weight loss 'accelerator'?

Related Stories

'Slow motion at the speed of light'

Mar 02, 2015

New technology developed by a collaboration between the UA and the University of California, Los Angeles, provides real-time monitoring of streaming video to optimize network traffic.

Twitter buys India mobile phone startup ZipDial

Jan 20, 2015

Twitter said on Tuesday it will buy Indian mobile marketing firm ZipDial, reportedly for $30-$40 million, as it looks to tap one of the world's fastest growing mobile phone markets.

Recommended for you

Bacteria renew mystery over Chilean poet Neruda's death

May 28, 2015

Family of Chilean poet Pablo Neruda said Thursday forensic experts have found evidence of a massive bacterial infection in his remains, increasing their suspicion that he was poisoned by dictator Augusto Pinochet's regime.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.