A Study Of Returns At Shareholders Of Bidding Firms

993 Words Mar 4th, 2016 4 Pages
In a study of returns to shareholders of bidding firms in tender offers, it was reported that average announcement date for abnormal returns was significantly less negative for bidding firms where half of the board was composed of independent directors from outside. There was a positive reaction from market after the announcement of poison pills when the board was composed majorly of outside directors and negative when it was not (Brickely et al., 1994). Examination of the link between outside directors on board and shareholders wealth provides significantly positive evidence as on average excess returns are directly related to the appointment of the outside directors in the board by the management. This suggests that outside independent directors’ likely act in the interest of shareholders of the organisation (Rosentein and Wyatt, 1990). ACs with more independent directors were not sanctioned by US Security and Exchange Commission (SEC) for misleading and fraudulent reporting (Abbott and Parker, 2000).
Some research regarding the role of ACs in case of wealth effects was conducted by Wild (1994, 1996). The hypothesis used in his study was, if the AC enhances the quality of reported earnings, then earning reports released after the formation of ACs would bring revisions in users expectations of future company performance. The findings showed a significant positive effect of 20% in stock variability, than the earning reports before the formation of the ACs. The independence…
Open Document