A Comparative Study of the Effect of Interlocking Directorates on Merger Target Selection under Different Merger and Acquisition Modes

Abstract

This paper, taking the directors of listed companies as point of penetration, studies the effects of interlocking directorates on the company’s merger decisions. With a focus on interlocking directorates’ influence on the selection of M & A targets, a Probit regression test was conducted by pairing potential M & A targets to real acquisition sample according to the industry of the real sample. The innovation of this paper lies in the study of whether there is a significant difference in the effect of interlocking directorates through differentiating various M & A modes, including horizontal mergers, vertical mergers and mixed mergers. The empirical analysis concludes that when there are interlocking directorates in merger company and potential target company, it is more likely for the potential target to be the object company. What’s more, by comparison, when the acquiring company and the target company are from different industries, there is greater impact of interlocking directorates, and the effects are stronger in vertical mergers than in mixed mergers and horizontal mergers.