The dark side of well-connected directors: Evidence from private firm acquisitions

We adopt a difference-in-difference approach to investigate the relationship between the board network and the acquirer's cumulative abnormal returns (CAR) by examining the influence of the directors' sudden death or retirement. We find that firms experiencing the departure of well-connected directors tend to obtain higher CAR when acquiring private targets. This suggests that well-connected directors may reduce the values of mergers and acquisitions (M&A). However, acquirers with greater external monitoring can reduce this negative effect. We also find that these directors with prior acquisition experience are more likely to secure board positions. In summary, these results support the agency problem that well-connected directors tend to make more M&A deals for their private benefits.