Director Histories and the Pattern of Acquisitions

Abstract

We trace directors through time and across firms to study whether acquirers' exposure to non-public information about potential targets through board service histories affects the market for corporate control. In a sample of publicly-traded U.S. firms from 1996 through 2006, we find that acquirers are about five times more likely to buy firms at which their directors once served. These effects are stronger when the acquirer has better corporate governance, the director has a larger ownership stake at the acquirer, or the director played an important role during past service at the target. The findings are robust to endogeneity of board composition and to controls for network connectivity and conventional inter-firm interlocks.