Costs and Benefits of “Friendly” Boards during Mergers and

Internet Appendix:Costs and Benefits of “Friendly” Boards during

Mergers and Acquisitions

Breno Schmidt

Goizueta School of BusinessEmory University

January, 2014

A Social Ties Data

To facilitate the exposition, I begin with a brief description of what is contained in the BoardExfiles. Each director profile is divided into sections containing information on past and currentemployment, education and “other activities.” These other activities include current and pastassociations to various types of nonprofit organizations, along with the role played by the di-rector in each of them (e.g., “Trustee” or “Director”). Unfortunately, BoardEx does not providea key to uniquely identify each organization. In addition, there are may cases in which thesame organization has different spellings. For instance, The Bryan Rotary Club of Texas is alsoidentified as The Rotary Club of Texas and The Bryan Rotary Club, Texas USA. To facilitatethe matching, a string comparison algorithm was applied to all institutions to identify very sim-ilar names. Each resulting tuple was then inspected by hand and a unique key was created touniquely identify each institution,

Some of these organizations (such as clubs and fraternities) clearly foster social interactions.Others, such as membership to professional associations like the American Bar Association,probably do not. To better capture potential social interactions, I focus on the following typesof institutions:

• Clubs: These include clubs and fraternities. In most cases, these are easily defined (e.g.,Augusta National Golf Club, Sigma Xi).

• Not-For-Profit (NFP): Includes organizations such as the Salvation Army, the Metropoli-tan Museum of Art (47 members), the Aspen Institute, and the Chicago Symphony Or-chestra. An effort was made to detect and exclude those NFPs related to businesses orprofessions (e.g., Ford Foundation).

• Network: Includes network-type organizations such as the World Presidents Organiza-tion, Young Presidents Organization, and the Junior Achievement.

• Background: Includes religious organizations, armed forces and “scouts” groups.The profiles contain associations to many other organizations that I do not include in the

social ties indexes. For the sake of completeness, these are described below. It is important toemphasize that these are not included in my social ties measures because they would probablyonly introduce noise in the indexes:

• Professional: Includes affiliations to professional organizations such as the AmericanBar Association, the American Institute of Certified Public Accountants and the FinancialExecutives Institute. These professional organizations are not included in the social tiesindexes constructed below, since affiliation is either too common or compulsory.

1

• Business: Includes “roundtables” and “councils” such as “council for economic devel-opment.” As with professional organizations, these are not included in the social tiesmeasures.

• Other: Includes other organizations that do not fit in the above categories.When no information on other activities was found for a director, I supplemented these

data by manually collecting biographical information for most of the remaining acquirers (fromproxy statements, company websites, and Marquis Who’s Who database).

To create a measure of the random ties that are expected to occur given the size of theorganizations the CEO belongs to. The net proportion of the directors tied to the CEO (actualties minus expected ties) is then used as a better proxy for social connections that are not relatedto the size of the organizations.

Specifically, for each firm-year in the sample, I simulate 10,000 random boards by samplingfrom a population of potential directors. To construct this population, I start with the universeof all directors in the BoardEx database, including directors of companies that are not in themerger sample. Since membership to a particular organization is correlated with the state inwhich the company maintains its headquarters, I include in the simulations only directors fromcompanies located in the same state as the bidder.

For each one of these simulated boards, I then check the proportion of directors that sharea common nonprofessional membership with the CEO. This procedure creates a distribution ofthe proportion of the board tied to the CEO, conditional on CEO membership. For each firm-year, the average of this distribution is then subtracted from the actual proportion of the boardconnected to the CEO.

For example, if company f announced an acquisition in January 2000, I first look for alldirectors who, during the fiscal year ending in 1999, served on the board of any company whoseheadquarters is in the same state as that of company f . If firm f reported a board size of 10,I draw 10 directors (without replacement) from this universe. For this simulated board, I thencheck how many of these directors have social ties with f ’s CEO. This procedure is repeated10,000 times and the average proportion of the board socially connected to the CEO is takento be the “expected” proportion of social ties, conditional on the memberships of the CEO ofcompany f . This “residual” is my measure of the proportion of the board connected to the CEO.

B Other Data

Compensation Data: Compensation data for the CEOs of S&P 1500 companies in the sam-ple were obtained from ExecuComp. I supplement these data by manually collecting detailed

2

information on salary, bonus, options and stock awards, non-equity incentive plans, pensionsand other compensation directly from SEC filings (DEF14A).

Acquirer-Target social ties : For public companies, social/employment connections wereobtained by matching the target’s PERMCO to BoardEx’s company identifier. For non-publictargets, I use the target’s name to manually match these firms to non-public companies listedin the employment history of directors obtained from BoardEx. This allowed me to studyconnections between acquirers and both public and non-public targets.

Media Coverage: I manually collected press releases for all acquirers in the sample fromFactiva using the methods described in Tetlock et al. (2008). I focused on the Wall StreetJournal as my main source of media coverage. I alsoimpose the same relevancy requirementsas in Tetlock et al. (2008).

3

C Measuring Performance with Market-Model Adjusted CAR[0,1]

This section presents results using market model adjusted stock returns around merger an-nouncements. Market model estimates are obtained using the daily CRSP value-weighted indexas a proxy for returns on the market portfolio. The estimation period is from 230 days to 11 daysbefore the announcement. Announcement dates are obtained from SDC, and two-day cumula-tive abnormal returns (CAR) are computed from that date to the end of the following tradingday.

Tables

C.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 5

C.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 6

C.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 7

C.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 8

C.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 9

C.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 10

C.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 12

4

Table C.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)

Social Tie × Monitor −0.442*** −0.419*** −0.395***(0.146) (0.148) (0.132)

Social Tie × Advice 0.685*** 0.676*** 0.638***(0.148) (0.148) (0.142)

% of Outside Dirs × Monitor −0.742 −0.563(0.864) (0.823)

% of Outside Dirs × Advice 0.949 0.361(0.760) (0.763)

Social Tie 0.008 −0.051 −0.056(0.151) (0.150) (0.152)

Monitor Factor −0.035 −0.023 0.143 0.145 0.472 0.521 −0.0067(0.090) (0.090) (0.132) (0.131) (0.654) (0.631) (0.0069)

Advice Factor −0.122 −0.400*** −0.123 −0.395*** −0.823 −0.646 0.0048(0.101) (0.137) (0.100) (0.137) (0.617) (0.603) (0.0089)

CEO Age 0.0025***(0.0009)

CEO Centrality 0.0450*(0.0241)

CEO Degree 0.0052***(0.0013)

% of Outside Dirs −0.332 −0.189 −0.400 −0.246 −0.176 −0.230 0.2093***(0.706) (0.714) (0.712) (0.718) (0.765) (0.758) (0.0530)

Log Total Assets −0.180** −0.197*** −0.186*** −0.200*** −0.181*** 0.0363***(0.069) (0.071) (0.070) (0.071) (0.069) (0.0046)

Industry Leverage −0.014** −0.014** −0.014** −0.014** −0.014** 0.0010**(0.006) (0.006) (0.006) (0.006) (0.006) (0.0005)

Industry Tobin’s Q (×100) −0.077 −0.086 −0.071 −0.080 −0.079 0.0055(0.061) (0.060) (0.064) (0.063) (0.062) (0.0095)

Price Run-up −0.271 −0.282 −0.267 −0.278 −0.270 0.0072(0.177) (0.175) (0.175) (0.173) (0.175) (0.0060)

Board Size −0.015 −0.016 −0.015 −0.015 −0.013 0.0234***(0.029) (0.028) (0.028) (0.029) (0.028) (0.0025)

Relative Deal Size 0.165*** 0.160*** 0.164*** 0.160*** 0.163*** −0.0190(0.061) (0.060) (0.061) (0.060) (0.060) (0.0122)

∆ Income (×100) 0.280 0.282 0.281 0.282* 0.289 −0.0007(0.185) (0.173) (0.178) (0.167) (0.183) (0.0129)

Connections to Target −2.824*** −2.840*** −2.837*** −2.851*** −2.844*** 0.0032(0.585) (0.581) (0.584) (0.581) (0.581) (0.0351)

Public Tgt × Stock Deal −3.211*** −3.190*** −3.223*** −3.203*** −3.180*** −0.0318(0.647) (0.641) (0.647) (0.641) (0.650) (0.0324)

Public Tgt × Cash Only 0.139 0.132 0.137 0.129 0.119 −0.0319(0.246) (0.242) (0.248) (0.244) (0.248) (0.0213)

Private Tgt × Stock Deal 0.558 0.595 0.587 0.622 0.573 0.0242(0.638) (0.637) (0.645) (0.643) (0.646) (0.0329)

Private Tgt × Cash Only −0.416* −0.400* −0.427* −0.411* −0.421* −0.0194(0.219) (0.220) (0.219) (0.220) (0.218) (0.0162)

Subsidiary × Cash Only 0.746*** 0.724*** 0.734*** 0.713*** 0.739*** −0.0045(0.234) (0.231) (0.235) (0.232) (0.233) (0.0174)

R-squared 0.032 0.034 0.033 0.035 0.033 0.035 0.1780Observations 6,773 6,773 6,773 6,773 6,773 6,773 6,773

5

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7

Table C.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

Panel A - Interactions with Factors

Largest 1 Deal 2 Deals ≥3 Deals Dir PriorDeal to CEO

Social Tie × Monitor −0.772*** −2.163*** −2.104** 0.074 −0.550***(0.293) (0.632) (0.887) (0.532) (0.135)

Social Tie × Advice 1.065** 1.875** 1.906** 0.544 0.760***(0.421) (0.784) (0.812) (0.654) (0.135)

Social Tie −0.283 −1.333* −0.285 0.250 −0.058(0.440) (0.795) (0.738) (0.762) (0.183)

R-squared 0.064 0.086 0.099 0.095 0.037Observations 2,135 681 449 980 6,697

Panel B - Interactions with Monitoring Proxies


Social Tie × Excess Cash −0.022 0.059 −0.066 −0.062 −0.030**(0.025) (0.062) (0.057) (0.048) (0.015)

Social Tie × High E-index −0.635 −3.132** −1.532 −0.860 −0.629*(0.620) (1.252) (1.499) (1.210) (0.326)

Social Tie × Merger Wave −0.266 1.543 −1.035 −4.103** −1.346**(0.958) (1.361) (1.806) (2.069) (0.569)

Social Tie × Diversifying × Low ∆ Inc −1.560** −3.178** −4.048*** 0.297 −1.461***(0.730) (1.588) (1.368) (1.259) (0.331)

Social Tie × Pay-Performance Sensitivity 0.633** 0.772** 0.564 0.507 0.362**(0.263) (0.313) (1.139) (0.475) (0.148)

Social Tie × Inst Ownership 0.116** 0.214* 0.140 −0.174 0.100***(0.053) (0.124) (0.118) (0.122) (0.029)

Panel C - Interactions with Advisory Proxies


Social Tie × Market Timers 0.582 0.757 2.751* −1.751 0.788*(0.776) (1.614) (1.581) (1.391) (0.407)

Social Tie × % Informed Outsiders 2.388*** 2.291 5.230*** 1.283 1.690***(0.890) (1.916) (1.954) (1.756) (0.451)

Social Tie × % Expert Outsiders 2.286* 3.331 6.185** 2.825 2.848***(1.349) (2.636) (2.743) (2.162) (0.472)

Social Tie × Low R&D 1.544 1.144 3.852* −0.013 0.792(1.290) (1.922) (2.245) (1.813) (0.700)

Social Tie × Well Connected Board 2.218*** 4.959*** 3.848** 0.747 2.137***(0.794) (1.421) (1.602) (1.505) (0.315)

Social Tie × Centrality 0.518 0.424 1.307 −0.416 0.332(0.686) (1.178) (1.089) (1.070) (0.216)

8

Table C.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

All Social Ties No Social Ties (1) - (2)(1) (2)

Full Sample0.625*** 0.203** 0.758*** −0.556***

(0.057) (0.080) (0.070) (0.133)More Monitoring

High Excess Cash 0.329*** 0.096 0.401*** −0.305***(0.042) (0.056) (0.052) (0.098)

High E-index 0.109*** −0.004 0.143*** −0.147**(0.026) (0.047) (0.031) (0.062)

Merger Wave 0.036 −0.023 0.053 −0.076(0.023) (0.027) (0.029) (0.055)

Diversifying × Low ∆ Inc 0.203*** −0.024 0.272*** −0.295***(0.029) (0.046) (0.036) (0.070)

Low PPS 0.360*** 0.071 0.486*** −0.415***(0.052) (0.058) (0.070) (0.112)

Low Inst Ownership 0.308*** 0.063 0.389*** −0.326***(0.042) (0.054) (0.053) (0.097)

High Monitor 0.284*** 0.036 0.360*** −0.324***(0.038) (0.061) (0.046) (0.091)

High Mon, Low Adv 0.084*** −0.067** 0.130*** −0.197***(0.023) (0.031) (0.028) (0.054)

More Advice

Market Timers 0.395*** 0.309*** 0.422*** −0.113(0.042) (0.056) (0.052) (0.099)

Informed Board 0.252*** 0.160** 0.281*** −0.121(0.042) (0.063) (0.052) (0.100)

Expert Board 0.194*** 0.074 0.231*** −0.157(0.038) (0.064) (0.046) (0.090)

Low R&D 0.588*** 0.354*** 0.660*** −0.306***(0.046) (0.064) (0.057) (0.108)

Well Connected Board 0.353*** 0.334*** 0.358*** −0.024(0.040) (0.065) (0.048) (0.094)

High Centrality 0.340*** 0.281*** 0.358*** −0.078(0.041) (0.065) (0.050) (0.097)

High Advice 0.327*** 0.330*** 0.326*** 0.004(0.038) (0.063) (0.046) (0.090)

Low Mon, High Adv 0.170*** 0.205*** 0.160*** 0.045(0.030) (0.046) (0.037) (0.071)

N Obs 6,857 1,705 5,1529

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11

Table C.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.

Panel A - Regressions

Power CEO % Board % OutsideCEO Tenure After CEO Directors

Social Tie × Monitor −0.410** −0.394** −0.445*** −0.3949***(0.161) (0.168) (0.147) (0.1322)

Social Tie × Advice 0.693*** 0.643*** 0.660*** 0.6380***(0.147) (0.138) (0.143) (0.1420)

Social Tie −0.070 −0.083 −0.037 −0.0560(0.152) (0.148) (0.150) (0.1516)

Proxy × Monitor −0.050 −0.027 0.365 −0.5633(0.210) (0.115) (0.287) (0.8229)

Proxy × Advice −0.140 0.047 0.276 0.3608(0.165) (0.108) (0.296) (0.7630)

Proxy 0.203 0.141 −0.275 −0.2301(0.174) (0.101) (0.358) (0.7580)

R-squared 0.035 0.035 0.035 0.0353Observations 6,773 6,755 6,773 6,773

Panel B - Quantile Regressions


Social Tie × Monitor −0.191 −0.319** −0.309** −0.2313*(0.135) (0.139) (0.138) (0.1368)

Social Tie × Advice 0.470*** 0.363** 0.346** 0.5174***(0.144) (0.148) (0.145) (0.1488)

Social Tie −0.131 −0.166 −0.087 −0.0992(0.170) (0.173) (0.173) (0.1722)

Proxy × Monitor −0.086 0.045 −0.046 −0.1355(0.142) (0.082) (0.283) (0.3717)

Proxy × Advice −0.142 −0.051 0.241 −0.2189(0.143) (0.085) (0.266) (0.4783)

Proxy 0.329** 0.174** 0.145 0.4487(0.133) (0.081) (0.278) (0.5253)


Continued on next page

12

Table C.7, Continued

Panel C - Regressions with Industry Fixed Effects


Social Tie × Monitor −0.368** −0.356* −0.403** −0.3426**(0.176) (0.184) (0.158) (0.1402)


Social Tie −0.036 −0.048 −0.005 −0.0281(0.155) (0.153) (0.152) (0.1528)

Proxy × Monitor −0.017 −0.006 0.475 −0.5880(0.217) (0.127) (0.296) (0.8473)

Proxy × Advice −0.122 0.040 0.369 0.3991(0.169) (0.107) (0.307) (0.7414)

Proxy 0.136 0.081 −0.274 −0.1820(0.178) (0.108) (0.375) (0.7946)


13

D Measuring Performance with Market-Model Adjusted CAR[1,0]

This section presents results using market model adjusted stock returns around merger an-nouncements. Market model estimates are obtained using the daily CRSP value-weighted indexas a proxy for returns on the market portfolio. The estimation period is from 230 days to 11days before the announcement. Announcement dates are obtained from SDC, and two-day cu-mulative abnormal returns (CAR) are computed from the day before that date to the close of theannouncement day.

Tables

D.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 15

D.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 16

D.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 17

D.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 18

D.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 19

D.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 20

D.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 22

14

Table D.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)

Social Tie × Monitor −0.345** −0.338** −0.257**(0.140) (0.141) (0.104)


% of Outside Dirs × Monitor −1.466* −1.305*(0.796) (0.777)

% of Outside Dirs × Advice 1.012* 0.554(0.584) (0.616)

Social Tie 0.239* 0.192 0.173(0.142) (0.137) (0.138)

Monitor Factor −0.018 −0.010 0.115 0.123 0.994* 0.995* −0.0062(0.086) (0.084) (0.127) (0.124) (0.595) (0.586) (0.0069)

Advice Factor 0.057 −0.169 0.064 −0.164 −0.681 −0.547 0.0044(0.080) (0.109) (0.080) (0.109) (0.470) (0.474) (0.0087)

CEO Age 0.0023**(0.0009)


CEO Degree 0.0049***(0.0014)

% of Outside Dirs −0.770 −0.596 −0.778 −0.701 −0.650 −0.728 0.2246***(0.582) (0.581) (0.586) (0.582) (0.624) (0.619) (0.0514)

Log Total Assets −0.302*** −0.306*** −0.296*** −0.318*** −0.290*** 0.0363***(0.070) (0.070) (0.069) (0.071) (0.068) (0.0045)

Industry Leverage 0.002 0.002 0.002 0.002 0.002 0.0011***(0.008) (0.008) (0.008) (0.008) (0.008) (0.0004)

Industry Tobin’s Q (×100) 0.072** 0.065* 0.078** 0.068** 0.071** 0.0058(0.036) (0.034) (0.031) (0.031) (0.034) (0.0096)

Price Run-up −0.599*** −0.605*** −0.596*** −0.602*** −0.594*** 0.0059(0.138) (0.136) (0.136) (0.134) (0.135) (0.0057)

Board Size −0.005 0.000 0.001 −0.005 0.004 0.0232***(0.025) (0.026) (0.026) (0.025) (0.026) (0.0025)

Relative Deal Size 0.127* 0.123* 0.127* 0.124* 0.124* −0.0210*(0.065) (0.064) (0.065) (0.065) (0.065) (0.0123)

∆ Income (×100) −0.006 −0.006 −0.007 −0.005 0.006 −0.0003(0.103) (0.097) (0.100) (0.089) (0.107) (0.0129)




Private Tgt × Stock Deal 1.182* 1.214* 1.204* 1.231* 1.214* 0.0088(0.686) (0.688) (0.690) (0.690) (0.694) (0.0319)

Private Tgt × Cash Only −0.227 −0.219 −0.241 −0.224 −0.242 −0.0207(0.184) (0.184) (0.184) (0.184) (0.182) (0.0167)

Subsidiary × Cash Only 0.478** 0.459** 0.466** 0.450** 0.466** −0.0039(0.183) (0.182) (0.183) (0.183) (0.182) (0.0171)


15

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17

Table D.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.688*** −1.976*** −1.973** 0.238 −0.540***(0.261) (0.717) (0.854) (0.371) (0.150)

Social Tie × Advice 0.619** 1.058* 0.975 1.254** 0.668***(0.302) (0.617) (0.646) (0.524) (0.133)

Social Tie 0.349 −0.114 0.779 −0.239 0.085(0.392) (0.688) (0.807) (0.523) (0.178)




Social Tie × Excess Cash −0.001 −0.069 −0.069* 0.017 −0.022*(0.023) (0.065) (0.036) (0.043) (0.012)

Social Tie × High E-index −1.742*** −3.715*** −1.247 −1.129 −0.863***(0.632) (1.308) (1.406) (0.968) (0.299)

Social Tie × Merger Wave −1.236 −2.436 0.219 −3.307*** −1.171***(0.888) (1.672) (1.529) (1.235) (0.352)

Social Tie × Diversifying × Low ∆ Inc −1.633*** −2.782** −4.013*** 0.240 −0.814**(0.598) (1.282) (0.824) (0.953) (0.321)

Social Tie × Pay-Performance Sensitivity 0.532** 0.776*** −0.210 0.172 0.305***(0.222) (0.286) (1.025) (0.399) (0.114)

Social Tie × Inst Ownership 0.077 0.158* 0.225** −0.222** 0.106***(0.049) (0.091) (0.111) (0.098) (0.026)



Social Tie × Market Timers 0.248 2.297* 1.632 −1.163 1.015***(0.662) (1.343) (1.408) (0.874) (0.340)

Social Tie × % Informed Outsiders 1.684* −0.128 2.047 0.745 1.055**(0.850) (1.490) (1.994) (1.363) (0.460)

Social Tie × % Expert Outsiders 2.484** 0.092 4.811** 1.375 1.944***(1.086) (2.232) (2.363) (1.511) (0.528)

Social Tie × Low R&D 1.420 1.859 3.664** −0.559 0.907(0.962) (1.478) (1.828) (1.190) (0.628)

Social Tie × Well Connected Board 2.001*** 3.186*** 2.431* 1.915* 1.963***(0.636) (1.133) (1.232) (1.050) (0.302)

Social Tie × Centrality 1.002 1.554* 0.158 0.397 0.483***(0.662) (0.892) (1.039) (1.048) (0.162)

18

Table D.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample0.349*** 0.022 0.453*** −0.430***

(0.048) (0.068) (0.059) (0.111)More Monitoring

High Excess Cash 0.203*** −0.070 0.287*** −0.358***(0.034) (0.046) (0.042) (0.081)

High E-index 0.029 −0.097** 0.067*** −0.164***(0.022) (0.040) (0.025) (0.051)

Merger Wave 0.016 −0.066*** 0.041 −0.106**(0.019) (0.022) (0.024) (0.045)

Diversifying × Low ∆ Inc 0.098*** −0.109*** 0.161*** −0.270***(0.025) (0.039) (0.030) (0.059)

Low PPS 0.098** −0.039 0.158*** −0.197**(0.042) (0.049) (0.057) (0.092)


High Monitor 0.186*** −0.017 0.248*** −0.265***(0.033) (0.053) (0.039) (0.077)

High Mon, Low Adv 0.041** −0.084*** 0.078*** −0.162***(0.019) (0.030) (0.023) (0.046)

More Advice

Market Timers 0.239*** 0.161*** 0.263*** −0.102(0.035) (0.047) (0.043) (0.082)

Informed Board 0.171*** 0.034 0.214*** −0.180**(0.035) (0.053) (0.043) (0.083)

Expert Board 0.114*** 0.052 0.132*** −0.080(0.032) (0.052) (0.039) (0.076)

Low R&D 0.318*** 0.168*** 0.364*** −0.196**(0.039) (0.055) (0.048) (0.091)

Well Connected Board 0.178*** 0.138** 0.190*** −0.052(0.033) (0.055) (0.040) (0.078)

High Centrality 0.186*** 0.058 0.225*** −0.167**(0.035) (0.058) (0.042) (0.082)

High Advice 0.176*** 0.147*** 0.185*** −0.038(0.031) (0.053) (0.038) (0.074)

Low Mon, High Adv 0.098*** 0.083** 0.103*** −0.020(0.024) (0.038) (0.029) (0.057)

N Obs 6,857 1,705 5,15219

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21

Table D.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.332** −0.381** −0.361** −0.2566**(0.151) (0.163) (0.138) (0.1045)


Social Tie 0.154 0.192 0.196 0.1726(0.141) (0.141) (0.138) (0.1378)

Proxy × Monitor −0.024 0.144 0.192 −1.3052*(0.208) (0.128) (0.299) (0.7766)

Proxy × Advice −0.087 0.035 −0.144 0.5536(0.146) (0.085) (0.266) (0.6159)

Proxy 0.338** 0.058 0.011 −0.7277(0.164) (0.090) (0.319) (0.6194)




Social Tie × Monitor −0.270*** −0.202* −0.410*** −0.3797***(0.104) (0.104) (0.105) (0.1056)

Social Tie × Advice 0.194* 0.091 0.326*** 0.2244**(0.109) (0.108) (0.108) (0.1119)

Social Tie −0.031 −0.053 −0.028 0.1173(0.129) (0.128) (0.129) (0.1298)

Proxy × Monitor −0.229** −0.015 −0.103 −0.8504***(0.108) (0.061) (0.211) (0.2897)

Proxy × Advice −0.107 0.098 −0.500** 0.1146(0.108) (0.062) (0.199) (0.3598)

Proxy 0.356*** 0.191*** 0.281 −0.5979(0.101) (0.059) (0.207) (0.3959)



22

Table D.7, Continued





Social Tie 0.166 0.203 0.208 0.1863(0.143) (0.144) (0.141) (0.1408)

Proxy × Monitor −0.028 0.141 0.189 −1.2800(0.208) (0.131) (0.297) (0.7842)

Proxy × Advice −0.075 0.039 −0.143 0.6129(0.147) (0.084) (0.268) (0.6169)

Proxy 0.305* 0.051 0.039 −0.6034(0.165) (0.091) (0.322) (0.6088)


23

E Measuring Performance with Market-Model Adjusted CAR[1,1]

This section presents results using market model adjusted stock returns around merger an-nouncements. Market model estimates are obtained using the daily CRSP value-weighted indexas a proxy for returns on the market portfolio. The estimation period is from 230 days to 11days before the announcement. Announcement dates are obtained from SDC, , and three-daycumulative abnormal returns (CAR) are computed around these dates.

Tables

E.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 25

E.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 26

E.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 27

E.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 28

E.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 29

E.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 30

E.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 32

24

Table E.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)





Social Tie 0.245 0.187 0.177(0.174) (0.169) (0.169)

Monitor Factor −0.029 −0.020 0.172 0.180 0.932 0.977 −0.0059(0.099) (0.098) (0.150) (0.148) (0.699) (0.672) (0.0069)

Advice Factor −0.154 −0.492*** −0.145 −0.484*** −1.180* −0.937 0.0044(0.096) (0.137) (0.095) (0.135) (0.623) (0.630) (0.0089)

CEO Age 0.0025***(0.0009)


CEO Degree 0.0052***(0.0013)

% of Outside Dirs −0.186 0.078 −0.221 −0.051 0.063 −0.042 0.2119***(0.769) (0.772) (0.774) (0.781) (0.820) (0.817) (0.0529)

Log Total Assets −0.313*** −0.317*** −0.310*** −0.332*** −0.299*** 0.0351***(0.080) (0.083) (0.080) (0.084) (0.080) (0.0047)

Industry Leverage −0.013 −0.014 −0.013 −0.014 −0.014 0.0010**(0.009) (0.009) (0.009) (0.009) (0.009) (0.0004)

Industry Tobin’s Q (×100) −0.148*** −0.157*** −0.141** −0.152*** −0.150*** 0.0055(0.055) (0.052) (0.055) (0.052) (0.056) (0.0096)

Price Run-up −0.480** −0.491** −0.474** −0.485** −0.475** 0.0038(0.210) (0.208) (0.207) (0.204) (0.208) (0.0067)

Board Size −0.017 −0.013 −0.010 −0.019 −0.009 0.0240***(0.030) (0.031) (0.030) (0.031) (0.031) (0.0025)

Relative Deal Size 0.196*** 0.190** 0.195*** 0.190** 0.192** −0.0184(0.074) (0.073) (0.074) (0.073) (0.074) (0.0120)

∆ Income (×100) 0.360* 0.360* 0.359* 0.361** 0.373* 0.0000(0.203) (0.192) (0.198) (0.182) (0.206) (0.0129)





Private Tgt × Cash Only −0.399 −0.378 −0.415* −0.387 −0.409* −0.0191(0.240) (0.243) (0.240) (0.243) (0.239) (0.0165)



25

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26

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27

Table E.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.850** −2.290*** −2.206** 0.246 −0.679***(0.331) (0.646) (0.968) (0.563) (0.205)

Social Tie × Advice 1.192*** 1.949** 2.025** 0.864 1.022***(0.379) (0.752) (0.818) (0.674) (0.182)

Social Tie −0.189 −0.679 0.126 0.102 0.123(0.474) (0.803) (0.850) (0.712) (0.269)




Social Tie × Excess Cash 0.015 0.028 −0.077 −0.019 −0.025(0.027) (0.054) (0.058) (0.054) (0.018)

Social Tie × High E-index −0.540 −2.804* −2.451 −0.698 −1.336***(0.674) (1.489) (1.605) (1.314) (0.447)

Social Tie × Merger Wave −1.327 1.510 −0.279 −4.407** −1.665***(1.172) (1.548) (1.815) (2.085) (0.626)

Social Tie × Diversifying × Low ∆ Inc −1.769** −3.127** −4.399*** 0.408 −1.627***(0.765) (1.372) (1.407) (1.305) (0.413)

Social Tie × Pay-Performance Sensitivity 0.688** 0.878** 0.289 0.533 0.343**(0.275) (0.338) (1.147) (0.497) (0.154)

Social Tie × Inst Ownership 0.119* 0.245** 0.192 −0.164 0.094**(0.063) (0.122) (0.135) (0.122) (0.037)



Social Tie × Market Timers 0.439 1.727 3.369* −2.290* 1.361**(0.895) (1.505) (1.870) (1.348) (0.521)

Social Tie × % Informed Outsiders 2.776*** 1.876 4.824** 1.485 1.962***(1.036) (1.810) (2.042) (1.803) (0.668)

Social Tie × % Expert Outsiders 2.828** 1.971 7.763*** 3.407 3.384***(1.415) (2.602) (2.940) (2.087) (0.732)

Social Tie × Low R&D 1.403 0.912 4.716* 0.112 0.619(1.236) (1.974) (2.642) (1.750) (0.833)

Social Tie × Well Connected Board 3.362*** 5.017*** 4.684*** 1.163 2.900***(0.784) (1.240) (1.736) (1.459) (0.414)

Social Tie × Centrality 0.044 0.697 0.707 −0.033 0.491**(0.649) (1.305) (0.988) (1.210) (0.236)

28

Table E.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample0.693*** 0.165 0.859*** −0.694***

(0.064) (0.088) (0.079) (0.149)More Monitoring

High Excess Cash 0.394*** 0.066 0.496*** −0.430***(0.046) (0.061) (0.058) (0.109)

High E-index 0.106*** −0.034 0.148*** −0.181***(0.029) (0.052) (0.035) (0.070)

Merger Wave 0.033 −0.038 0.054 −0.092(0.026) (0.030) (0.033) (0.062)


Low PPS 0.337*** 0.046 0.463*** −0.417***(0.058) (0.064) (0.077) (0.125)


High Monitor 0.310*** 0.029 0.395*** −0.367***(0.043) (0.067) (0.052) (0.101)

High Mon, Low Adv 0.112*** −0.073** 0.167*** −0.240***(0.025) (0.036) (0.031) (0.060)

More Advice

Market Timers 0.440*** 0.276*** 0.491*** −0.215(0.047) (0.061) (0.059) (0.111)

Informed Board 0.278*** 0.132 0.323*** −0.191(0.048) (0.070) (0.059) (0.113)

Expert Board 0.203*** 0.040 0.253*** −0.213**(0.043) (0.069) (0.051) (0.101)

Low R&D 0.639*** 0.331*** 0.734*** −0.403***(0.051) (0.071) (0.063) (0.120)

Well Connected Board 0.330*** 0.311*** 0.336*** −0.026(0.044) (0.071) (0.054) (0.104)

High Centrality 0.351*** 0.257*** 0.379*** −0.122(0.046) (0.072) (0.056) (0.109)

High Advice 0.313*** 0.310*** 0.313*** −0.004(0.042) (0.070) (0.051) (0.100)

Low Mon, High Adv 0.179*** 0.188*** 0.177*** 0.011(0.033) (0.051) (0.040) (0.078)

N Obs 6,857 1,705 5,15229

Tabl

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31

Table E.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.492*** −0.493** −0.504*** −0.4379***(0.185) (0.194) (0.172) (0.1564)


Social Tie 0.158 0.169 0.193 0.1774(0.175) (0.170) (0.171) (0.1691)

Proxy × Monitor 0.001 0.039 0.203 −1.1939(0.256) (0.142) (0.348) (0.8774)

Proxy × Advice −0.146 −0.054 0.291 0.6522(0.155) (0.108) (0.334) (0.8196)

Proxy 0.311 0.104 −0.151 −0.0424(0.194) (0.112) (0.446) (0.8167)




Social Tie × Monitor −0.084 −0.501*** −0.193 −0.3771**(0.147) (0.146) (0.143) (0.1468)

Social Tie × Advice 0.568*** 0.449*** 0.437*** 0.3327**(0.148) (0.151) (0.144) (0.1561)

Social Tie −0.258 0.013 −0.084 0.3045*(0.185) (0.183) (0.178) (0.1848)

Proxy × Monitor −0.173 0.038 0.361 −0.4927(0.155) (0.087) (0.293) (0.3994)

Proxy × Advice −0.035 −0.165* 0.196 0.7866(0.146) (0.089) (0.274) (0.5006)

Proxy 0.601*** 0.228*** 0.168 0.0795(0.144) (0.085) (0.288) (0.5637)



32

Table E.7, Continued





Social Tie 0.159 0.170 0.188 0.1732(0.179) (0.177) (0.175) (0.1727)

Proxy × Monitor 0.019 0.055 0.289 −1.1562(0.262) (0.152) (0.359) (0.9098)

Proxy × Advice −0.121 −0.061 0.373 0.7302(0.156) (0.107) (0.339) (0.8119)

Proxy 0.234 0.035 −0.125 0.0115(0.193) (0.118) (0.459) (0.8381)


33

F Measuring Performance with Market Adjusted CAR[1,1]

This section presents results using market adjusted stock returns around merger announcements.The daily CRSP value-weighted index is used as a proxy for returns on the market portfolio. An-nouncement dates are obtained from SDC, , and three-day cumulative abnormal returns (CAR)are computed around these dates.

Tables

F.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 35

F.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 36

F.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 37

F.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 38

F.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 39

F.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 40

F.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 42

34

Table F.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)





Social Tie 0.234 0.177 0.165(0.168) (0.162) (0.162)

Monitor Factor −0.049 −0.039 0.162 0.170 0.968 1.016 −0.0057(0.102) (0.100) (0.151) (0.149) (0.721) (0.697) (0.0069)

Advice Factor −0.124 −0.473*** −0.116 −0.464*** −1.101* −0.839 0.0027(0.099) (0.141) (0.098) (0.140) (0.620) (0.622) (0.0089)

CEO Age 0.0026***(0.0009)


CEO Degree 0.0051***(0.0013)

% of Outside Dirs −0.115 0.151 −0.158 0.020 0.105 −0.007 0.2081***(0.799) (0.807) (0.806) (0.814) (0.849) (0.843) (0.0530)

Log Total Assets −0.288*** −0.293*** −0.285*** −0.308*** −0.273*** 0.0362***(0.076) (0.080) (0.077) (0.080) (0.077) (0.0046)


Industry Tobin’s Q (×100) −0.203*** −0.212*** −0.195*** −0.206*** −0.204*** 0.0056(0.054) (0.051) (0.055) (0.052) (0.055) (0.0095)

Price Run-up −0.969*** −0.980*** −0.964*** −0.973*** −0.966*** −0.0012(0.171) (0.169) (0.169) (0.166) (0.169) (0.0076)

Board Size −0.014 −0.011 −0.007 −0.016 −0.006 0.0237***(0.032) (0.032) (0.031) (0.032) (0.032) (0.0025)


∆ Income (×100) 0.320* 0.321* 0.319* 0.322** 0.333* −0.0002(0.176) (0.165) (0.172) (0.156) (0.179) (0.0128)





Private Tgt × Cash Only −0.499** −0.478** −0.516** −0.488** −0.510** −0.0174(0.235) (0.237) (0.235) (0.237) (0.234) (0.0166)



35

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36

Tabl

eF.

3:In

divi

dual

Prox

iesf

orM

onito

ring

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ista

ble

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the

estim

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37

Table F.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −1.049*** −2.316*** −2.855*** 0.238 −0.691***(0.336) (0.602) (1.003) (0.591) (0.213)


Social Tie −0.119 −1.074 0.054 0.040 0.139(0.471) (0.796) (0.944) (0.688) (0.269)





Social Tie × High E-index −1.083 −2.699* −3.356* −0.559 −1.310***(0.670) (1.568) (1.693) (1.257) (0.435)

Social Tie × Merger Wave −1.132 1.735 −0.152 −4.435** −1.831***(1.175) (1.586) (1.928) (1.965) (0.652)

Social Tie × Diversifying × Low ∆ Inc −2.127*** −2.691* −5.063*** 0.409 −1.820***(0.795) (1.415) (1.418) (1.270) (0.453)

Social Tie × Pay-Performance Sensitivity 0.778*** 0.912*** 0.345 0.656 0.344**(0.284) (0.326) (1.156) (0.450) (0.147)

Social Tie × Inst Ownership 0.092 0.237* 0.131 −0.183 0.080**(0.062) (0.125) (0.130) (0.120) (0.039)



Social Tie × Market Timers 0.328 0.907 2.303 −1.907 1.352***(0.903) (1.521) (1.770) (1.335) (0.495)

Social Tie × % Informed Outsiders 3.001*** 2.501 4.838** 1.356 2.324***(1.066) (1.834) (2.100) (1.775) (0.684)

Social Tie × % Expert Outsiders 2.702* 2.273 6.022** 3.234 3.660***(1.393) (2.460) (2.972) (2.068) (0.713)

Social Tie × Low R&D 1.303 1.021 4.666* 0.212 0.536(1.273) (1.825) (2.631) (1.651) (0.806)


Social Tie × Centrality 0.055 0.691 0.600 0.074 0.451*(0.627) (1.223) (0.993) (1.201) (0.230)

38

Table F.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample0.443*** 0.008 0.579*** −0.572***

(0.063) (0.087) (0.078) (0.147)More Monitoring

High Excess Cash 0.265*** −0.010 0.349*** −0.359***(0.046) (0.060) (0.057) (0.108)

High E-index 0.027 −0.120** 0.070** −0.191***(0.029) (0.051) (0.034) (0.068)

Merger Wave −0.009 −0.054 0.005 −0.059(0.026) (0.029) (0.032) (0.061)

Diversifying × Low ∆ Inc 0.132*** −0.157*** 0.218*** −0.375***(0.032) (0.050) (0.039) (0.076)

Low PPS 0.226*** −0.002 0.324*** −0.326***(0.057) (0.066) (0.076) (0.124)


High Monitor 0.185*** −0.068 0.261*** −0.329***(0.042) (0.066) (0.051) (0.099)

High Mon, Low Adv 0.061** −0.121*** 0.114*** −0.235***(0.025) (0.036) (0.030) (0.059)

More Advice

Market Timers 0.293*** 0.170*** 0.331*** −0.161(0.047) (0.061) (0.058) (0.110)

Informed Board 0.148*** 0.063 0.174*** −0.112(0.047) (0.070) (0.058) (0.112)

Expert Board 0.074 −0.064 0.116** −0.180(0.042) (0.069) (0.050) (0.099)

Low R&D 0.471*** 0.168** 0.563*** −0.395***(0.050) (0.071) (0.062) (0.119)

Well Connected Board 0.225*** 0.250*** 0.218*** 0.032(0.044) (0.070) (0.053) (0.104)

High Centrality 0.233*** 0.188*** 0.246*** −0.058(0.045) (0.072) (0.055) (0.107)

High Advice 0.221*** 0.258*** 0.210*** 0.048(0.042) (0.069) (0.051) (0.099)

Low Mon, High Adv 0.135*** 0.189*** 0.119*** 0.070(0.033) (0.049) (0.040) (0.078)

N Obs 6,857 1,705 5,15239

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41

Table F.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.507*** −0.524*** −0.525*** −0.4584***(0.185) (0.191) (0.165) (0.1494)


Social Tie 0.145 0.153 0.183 0.1653(0.168) (0.166) (0.163) (0.1622)

Proxy × Monitor −0.050 0.066 0.181 −1.2661(0.255) (0.139) (0.350) (0.9056)

Proxy × Advice −0.115 −0.062 0.303 0.5414(0.147) (0.112) (0.341) (0.8052)

Proxy 0.303 0.139 −0.194 −0.0073(0.189) (0.116) (0.421) (0.8425)




Social Tie × Monitor −0.302** −0.405*** −0.544*** −0.1965(0.144) (0.144) (0.143) (0.1423)

Social Tie × Advice 0.353** 0.614*** 0.326** 0.3627**(0.145) (0.149) (0.144) (0.1515)

Social Tie −0.056 0.043 0.256 0.1619(0.182) (0.181) (0.179) (0.1796)

Proxy × Monitor −0.147 0.023 0.041 −0.0235(0.151) (0.086) (0.293) (0.3869)

Proxy × Advice 0.202 −0.223** 0.043 0.4235(0.144) (0.088) (0.275) (0.4858)

Proxy 0.223 0.061 0.500* −1.2668**(0.141) (0.084) (0.288) (0.5464)



42

Table F.7, Continued



Social Tie × Monitor −0.459** −0.480** −0.478*** −0.4030**(0.197) (0.205) (0.176) (0.1554)


Social Tie 0.146 0.153 0.178 0.1612(0.175) (0.175) (0.170) (0.1679)

Proxy × Monitor −0.035 0.078 0.267 −1.2279(0.261) (0.149) (0.360) (0.9406)

Proxy × Advice −0.092 −0.076 0.365 0.6192(0.150) (0.111) (0.347) (0.7924)

Proxy 0.220 0.069 −0.171 0.0636(0.188) (0.122) (0.435) (0.8649)


43

G Using Prior Acquirer Returns to Estimate CAR[1,1]

This section presents results using stock returns around merger announcements, adjusted for theacquirer’s average return from 230 days to 11 days before the announcement. Announcementdates are obtained from SDC, and three-day cumulative abnormal returns (CAR) are computedaround these dates.

Tables

G.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 45

G.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 46

G.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 47

G.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 48

G.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 49

G.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 50

G.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 52

44

Table G.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)




% of Outside Dirs × Advice 1.275 0.489(0.826) (0.881)

Social Tie 0.246 0.185 0.175(0.183) (0.176) (0.178)

Monitor Factor −0.028 −0.019 0.179 0.187 0.944 0.994 −0.0059(0.096) (0.095) (0.147) (0.144) (0.695) (0.669) (0.0069)

Advice Factor −0.097 −0.451*** −0.088 −0.443*** −1.044 −0.781 0.0039(0.107) (0.152) (0.106) (0.151) (0.679) (0.685) (0.0089)

CEO Age 0.0024**(0.0009)


CEO Degree 0.0050***(0.0013)

% of Outside Dirs −0.008 0.265 −0.047 0.135 0.210 0.100 0.2018***(0.807) (0.806) (0.813) (0.817) (0.861) (0.858) (0.0531)

Log Total Assets −0.298*** −0.302*** −0.295*** −0.318*** −0.284*** 0.0350***(0.078) (0.081) (0.078) (0.081) (0.078) (0.0047)



Price Run-up −1.054*** −1.065*** −1.048*** −1.059*** −1.050*** 0.0010(0.202) (0.200) (0.199) (0.197) (0.200) (0.0068)

Board Size −0.008 −0.005 −0.001 −0.010 0.000 0.0239***(0.032) (0.032) (0.032) (0.032) (0.032) (0.0025)


∆ Income (×100) 0.292* 0.292* 0.291* 0.293* 0.304* 0.0001(0.173) (0.162) (0.170) (0.155) (0.175) (0.0127)



Public Tgt × Cash Only 0.241 0.232 0.234 0.238 0.207 −0.0349*(0.256) (0.252) (0.258) (0.253) (0.260) (0.0211)


Private Tgt × Cash Only −0.481* −0.459* −0.497** −0.468* −0.491** −0.0179(0.248) (0.251) (0.248) (0.251) (0.247) (0.0166)



45

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47

Table G.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.896** −2.362*** −1.898* 0.228 −0.760***(0.344) (0.663) (1.040) (0.549) (0.218)


Social Tie 0.024 −0.842 0.058 0.142 0.271(0.494) (0.820) (0.898) (0.749) (0.294)




Social Tie × Excess Cash 0.008 0.022 −0.074 −0.000 −0.038*(0.028) (0.056) (0.061) (0.060) (0.020)

Social Tie × High E-index −0.914 −3.021* −1.859 −0.919 −1.319***(0.802) (1.623) (2.061) (1.407) (0.468)

Social Tie × Merger Wave 0.046 2.157 0.223 −4.094* −1.973***(1.396) (1.902) (1.928) (2.310) (0.626)

Social Tie × Diversifying × Low ∆ Inc −2.220*** −3.470** −5.884*** 0.186 −1.902***(0.821) (1.439) (1.764) (1.286) (0.457)

Social Tie × Pay-Performance Sensitivity 0.671** 0.898*** 0.116 0.488 0.427***(0.276) (0.325) (1.066) (0.541) (0.156)

Social Tie × Inst Ownership 0.131** 0.277** 0.097 −0.146 0.099**(0.058) (0.125) (0.127) (0.128) (0.042)



Social Tie × Market Timers 0.533 0.025 1.960 −2.039 1.470***(0.929) (1.575) (1.784) (1.444) (0.484)

Social Tie × % Informed Outsiders 2.555** 2.690 3.740* 1.867 2.254***(1.119) (1.874) (2.061) (1.882) (0.686)

Social Tie × % Expert Outsiders 2.451 3.446 6.122** 3.791* 3.447***(1.489) (2.575) (3.059) (2.189) (0.734)

Social Tie × Low R&D 0.564 1.318 3.593 −0.020 0.108(1.335) (1.851) (2.758) (1.858) (0.921)


Social Tie × Centrality 0.150 1.646 1.269 0.348 0.163(0.718) (1.279) (0.968) (1.205) (0.256)

48

Table G.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample0.372*** −0.032 0.497*** −0.529***

(0.067) (0.094) (0.083) (0.158)More Monitoring

High Excess Cash 0.210*** −0.022 0.281*** −0.303***(0.049) (0.066) (0.060) (0.116)

High E-index 0.047 −0.120** 0.096*** −0.216***(0.031) (0.057) (0.037) (0.075)

Merger Wave −0.017 −0.054 −0.005 −0.049(0.027) (0.032) (0.033) (0.064)

Diversifying × Low ∆ Inc 0.141*** −0.116** 0.217*** −0.333***(0.035) (0.056) (0.042) (0.084)

Low PPS 0.153** −0.031 0.232*** −0.263(0.062) (0.071) (0.083) (0.135)

Low Inst Ownership 0.160*** −0.088 0.241*** −0.329***(0.049) (0.066) (0.062) (0.114)

High Monitor 0.177*** −0.095 0.258*** −0.353***(0.046) (0.072) (0.055) (0.108)

High Mon, Low Adv 0.051 −0.151*** 0.110*** −0.262***(0.027) (0.039) (0.033) (0.065)

More Advice

Market Timers 0.246*** 0.137** 0.279*** −0.142(0.050) (0.066) (0.062) (0.118)

Informed Board 0.103** 0.022 0.128** −0.106(0.050) (0.074) (0.061) (0.119)

Expert Board 0.042 −0.111 0.088 −0.199(0.045) (0.072) (0.054) (0.106)

Low R&D 0.410*** 0.157** 0.487*** −0.330***(0.053) (0.076) (0.066) (0.127)


High Centrality 0.210*** 0.164** 0.224*** −0.060(0.048) (0.077) (0.058) (0.115)

High Advice 0.208*** 0.227*** 0.202*** 0.025(0.045) (0.073) (0.054) (0.107)

Low Mon, High Adv 0.121*** 0.166*** 0.108** 0.057(0.035) (0.052) (0.043) (0.083)

N Obs 6,857 1,705 5,15249

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51

Table G.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.





Social Tie 0.173 0.169 0.192 0.1749(0.184) (0.179) (0.178) (0.1781)

Proxy × Monitor −0.003 0.061 0.293 −1.2070(0.258) (0.140) (0.344) (0.8727)

Proxy × Advice −0.257 −0.084 0.390 0.4886(0.163) (0.119) (0.345) (0.8810)

Proxy 0.239 0.100 −0.167 0.1001(0.201) (0.114) (0.450) (0.8578)




Social Tie × Monitor −0.416*** −0.533*** −0.356** −0.2814*(0.156) (0.158) (0.155) (0.1558)

Social Tie × Advice 0.583*** 0.545*** 0.409*** 0.3797**(0.157) (0.162) (0.155) (0.1657)

Social Tie 0.033 0.059 0.200 0.2524(0.196) (0.198) (0.194) (0.1967)

Proxy × Monitor −0.128 0.016 −0.084 −0.0781(0.164) (0.093) (0.317) (0.4232)

Proxy × Advice −0.083 −0.093 0.102 0.2100(0.155) (0.096) (0.297) (0.5304)

Proxy 0.428*** −0.012 0.402 −0.4564(0.153) (0.092) (0.311) (0.5969)



52

Table G.7, Continued





Social Tie 0.192 0.188 0.206 0.1893(0.184) (0.182) (0.179) (0.1776)

Proxy × Monitor 0.042 0.076 0.376 −1.2077(0.264) (0.150) (0.356) (0.8991)

Proxy × Advice −0.226 −0.100 0.480 0.4871(0.167) (0.116) (0.351) (0.8640)

Proxy 0.161 0.027 −0.146 0.2701(0.199) (0.123) (0.463) (0.8803)


53

H Measuring Performance with Market-Model Adjusted CAR[2,2]

This section presents results using market model adjusted stock returns around merger an-nouncements. Market model estimates are obtained using the daily CRSP value-weighted indexas a proxy for returns on the market portfolio. The estimation period is from 230 days to 11days before the announcement. Announcement dates are obtained from SDC, and five-daycumulative abnormal returns (CAR) are computed around these dates.

Tables

H.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 55

H.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 56

H.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 57

H.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 58

H.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 59

H.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 60

H.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 62

54

Table H.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)





Social Tie 0.350* 0.256 0.246(0.194) (0.186) (0.187)

Monitor Factor −0.088 −0.075 0.117 0.129 0.691 0.736 −0.0056(0.091) (0.090) (0.137) (0.134) (0.554) (0.525) (0.0069)

Advice Factor −0.159 −0.574*** −0.148 −0.566*** −1.565* −1.313 0.0030(0.130) (0.188) (0.128) (0.186) (0.877) (0.858) (0.0089)

CEO Age 0.0024**(0.0009)


CEO Degree 0.0051***(0.0013)

% of Outside Dirs −0.177 0.117 −0.191 −0.018 0.257 0.134 0.1984***(0.909) (0.916) (0.912) (0.922) (0.989) (0.981) (0.0519)

Log Total Assets −0.410*** −0.421*** −0.402*** −0.439*** −0.399*** 0.0361***(0.090) (0.092) (0.090) (0.093) (0.090) (0.0048)



Price Run-up −0.595*** −0.610*** −0.590*** −0.605*** −0.596*** 0.0040(0.209) (0.207) (0.207) (0.204) (0.208) (0.0068)

Board Size 0.001 0.010 0.010 0.002 0.014 0.0237***(0.042) (0.042) (0.041) (0.042) (0.042) (0.0025)

Relative Deal Size 0.216* 0.209* 0.215* 0.209* 0.212* −0.0184(0.111) (0.110) (0.111) (0.110) (0.111) (0.0120)

∆ Income (×100) 0.452* 0.451* 0.450* 0.453* 0.466* −0.0003(0.257) (0.243) (0.253) (0.233) (0.257) (0.0127)





Private Tgt × Cash Only −0.410 −0.389 −0.430 −0.397 −0.427 −0.0191(0.268) (0.269) (0.267) (0.270) (0.266) (0.0164)



55

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56

Tabl

eH

.3:

Indi

vidu

alPr

oxie

sfor

Mon

itori

ng/A

dvis

ory

This

tabl

eco

ntai

nsth

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regr

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ons

ofbi

dder

anno

unce

men

tre

turn

son

all

prox

ies

for

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itorin

gco

sts

and

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sory

bene

fits.

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tere

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eth

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tera

ctio

nsbe

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ean

dth

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ies.

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brev

ity,

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tabl

ere

port

son

lyth

ese

coef

ficie

nts,

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ough

all

cont

rols

pres

ent

inTa

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E.1

are

in-

clud

edin

the

regr

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ons.

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elA

disp

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the

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for

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96,

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lB-S

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ring

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(0.1

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57

Table H.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.775** −1.704** −2.161* 0.207 −0.480**(0.341) (0.660) (1.217) (0.638) (0.213)

Social Tie × Advice 1.315*** 1.857** 2.726*** 0.989 1.189***(0.440) (0.932) (1.028) (0.680) (0.198)

Social Tie 0.035 −1.195 0.364 0.260 0.165(0.520) (0.993) (1.229) (0.680) (0.289)





Social Tie × High E-index −0.916 −2.523 −2.116 −0.607 −1.354**(0.779) (1.531) (2.027) (1.366) (0.518)

Social Tie × Merger Wave −1.189 −0.754 −0.201 −4.561** −1.738***(1.108) (1.573) (2.412) (2.178) (0.572)

Social Tie × Diversifying × Low ∆ Inc −1.651* −3.510** −4.777** 1.360 −2.222***(0.947) (1.538) (1.889) (1.381) (0.510)

Social Tie × Pay-Performance Sensitivity 0.567** 0.500 0.674 1.061** 0.166(0.252) (0.311) (0.928) (0.448) (0.121)

Social Tie × Inst Ownership 0.152** 0.246 0.283 −0.172 0.115***(0.069) (0.150) (0.173) (0.125) (0.042)



Social Tie × Market Timers 0.117 0.619 3.986* −2.618* 1.718***(0.880) (1.859) (2.075) (1.395) (0.531)

Social Tie × % Informed Outsiders 3.320*** 4.368** 5.455** 0.587 2.036***(1.163) (2.042) (2.487) (2.055) (0.740)

Social Tie × % Expert Outsiders 2.215 1.532 6.491* 2.513 3.757***(1.461) (2.779) (3.678) (2.179) (0.835)

Social Tie × Low R&D −0.428 −0.664 0.273 −0.116 0.437(1.486) (2.265) (4.200) (1.795) (1.060)

Social Tie × Well Connected Board 3.333*** 4.005*** 6.027*** 1.618 3.306***(0.826) (1.498) (2.121) (1.396) (0.472)

Social Tie × Centrality 0.699 0.574 0.852 −0.051 0.466*(0.770) (1.663) (1.332) (1.269) (0.255)

58

Table H.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample0.860*** 0.376*** 1.009*** −0.633***

(0.075) (0.107) (0.092) (0.176)More Monitoring

High Excess Cash 0.459*** 0.200*** 0.538*** −0.338***(0.054) (0.075) (0.067) (0.129)

High E-index 0.115*** 0.001 0.149*** −0.149(0.035) (0.060) (0.041) (0.083)

Merger Wave 0.068** −0.029 0.097** −0.126(0.030) (0.033) (0.038) (0.072)


Low PPS 0.320*** 0.126 0.403*** −0.277(0.069) (0.077) (0.093) (0.151)

Low Inst Ownership 0.446*** 0.187** 0.530*** −0.344***(0.055) (0.077) (0.068) (0.128)

High Monitor 0.358*** 0.083 0.440*** −0.357***(0.050) (0.080) (0.061) (0.119)

High Mon, Low Adv 0.151*** −0.093** 0.223*** −0.316***(0.030) (0.043) (0.037) (0.071)

More Advice

Market Timers 0.581*** 0.400*** 0.635*** −0.235(0.056) (0.076) (0.069) (0.133)

Informed Board 0.394*** 0.277*** 0.429*** −0.152(0.057) (0.083) (0.069) (0.134)

Expert Board 0.297*** 0.202** 0.325*** −0.123(0.051) (0.085) (0.061) (0.120)

Low R&D 0.759*** 0.469*** 0.846*** −0.377***(0.060) (0.087) (0.074) (0.143)


High Centrality 0.467*** 0.441*** 0.475*** −0.034(0.054) (0.088) (0.065) (0.127)

High Advice 0.399*** 0.512*** 0.365*** 0.147(0.050) (0.084) (0.060) (0.118)

Low Mon, High Adv 0.265*** 0.356*** 0.237*** 0.119(0.039) (0.062) (0.047) (0.092)

N Obs 6,857 1,705 5,15259

Tabl

eH

.6:

Eff

ects

ofSo

cial

Ties

inD

iffer

entS

ampl

esTh

ista

ble

cont

ains

the

estim

ates

ofre

gres

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ent

retu

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any

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and

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ties,

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21)

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61

Table H.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.





Social Tie 0.231 0.190 0.269 0.2460(0.195) (0.185) (0.188) (0.1870)

Proxy × Monitor 0.039 −0.034 0.340 −0.9140(0.232) (0.132) (0.341) (0.7158)

Proxy × Advice −0.286 −0.086 0.314 1.0677(0.204) (0.127) (0.393) (1.0839)

Proxy 0.334* 0.269** −0.357 0.1339(0.201) (0.118) (0.468) (0.9806)





Social Tie × Advice 0.592*** 0.306 0.461** 0.7576***(0.200) (0.199) (0.195) (0.2020)

Social Tie 0.234 0.286 0.279 0.2080(0.237) (0.237) (0.235) (0.2362)

Proxy × Monitor 0.051 −0.015 0.156 −0.6052(0.197) (0.111) (0.382) (0.5065)

Proxy × Advice −0.287 −0.073 −0.041 0.5880(0.198) (0.115) (0.359) (0.6482)

Proxy 0.164 0.371*** −0.220 −0.0022(0.184) (0.109) (0.375) (0.7149)



62

Table H.7, Continued



Social Tie × Monitor −0.466** −0.442** −0.484*** −0.4107**(0.191) (0.184) (0.182) (0.1639)


Social Tie 0.245 0.203 0.280 0.2539(0.198) (0.192) (0.192) (0.1901)

Proxy × Monitor 0.067 −0.005 0.439 −0.9193(0.237) (0.142) (0.337) (0.7380)

Proxy × Advice −0.250 −0.111 0.386 1.0528(0.205) (0.126) (0.398) (1.0639)

Proxy 0.256 0.205 −0.311 0.1720(0.202) (0.129) (0.482) (1.0115)


63

I Measuring Performance with Market-Model Adjusted CAR[5,5]

This section presents results using market model adjusted stock returns around merger an-nouncements. Market model estimates are obtained using the daily CRSP value-weighted indexas a proxy for returns on the market portfolio. The estimation period is from 230 days to 11days before the announcement. Announcement dates are obtained from SDC, and eleven-daycumulative abnormal returns (CAR) are computed around these dates.

Tables

I.1 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 65

I.2 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 66

I.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 67

I.4 Serial Acquirers, Directors Appointed Prior to the CEO, and Deal Visibility . 68

I.5 Bidder Announcement Returns for Different Samples . . . . . . . . . . . . . 69

I.6 Effects of Social Ties in Different Samples . . . . . . . . . . . . . . . . . . . 70

I.7 Alternative Measures of Friendly Boards . . . . . . . . . . . . . . . . . . . . 72

64

Table I.1: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies forsocial ties, monitoring costs, and advisory benefits (Columns (1) to (6)). Social Tie is a dummy variable equal to 1 if theCEO is socially connected to at least one outside board member, and 0 otherwise. Monitor Factor is the first principal com-ponent factor constructed from the individual monitoring costs proxies. Advice Factor is defined analogously. % of OutsideDirs is the proportion of outside directors on the board (in %). All other controls are defined in Table J.8. The last col-umn, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additional explana-tory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the network.CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal year pre-ceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)

Social Tie × Monitor −0.399** −0.395** −0.357*(0.182) (0.187) (0.191)


% of Outside Dirs × Monitor −1.163** −0.966*(0.576) (0.570)

% of Outside Dirs × Advice 2.712*** 1.661*(0.910) (0.986)

Social Tie 0.562** 0.449* 0.446*(0.262) (0.265) (0.262)

Monitor Factor −0.162* −0.151* −0.009 0.008 0.619 0.646* −0.0070(0.090) (0.090) (0.137) (0.134) (0.399) (0.383) (0.0069)

Advice Factor −0.193 −0.690*** −0.178 −0.682*** −2.211*** −1.849** 0.0001(0.158) (0.231) (0.157) (0.229) (0.747) (0.743) (0.0085)

CEO Age 0.0027***(0.0009)


CEO Degree 0.0052***(0.0013)

% of Outside Dirs −0.036 0.406 0.011 0.246 0.710 0.558 0.2047***(1.185) (1.205) (1.188) (1.207) (1.179) (1.181) (0.0502)

Log Total Assets −0.542*** −0.539*** −0.522*** −0.564*** −0.519*** 0.0376***(0.104) (0.110) (0.105) (0.108) (0.108) (0.0045)

Industry Leverage −0.036*** −0.036*** −0.035*** −0.036*** −0.036*** 0.0009**(0.006) (0.006) (0.006) (0.006) (0.006) (0.0004)


Price Run-up −0.703*** −0.717*** −0.698*** −0.714*** −0.704*** 0.0070(0.208) (0.208) (0.208) (0.208) (0.206) (0.0063)

Board Size −0.006 0.004 0.009 −0.009 0.010 0.0233***(0.052) (0.053) (0.052) (0.053) (0.052) (0.0024)

Relative Deal Size 0.177* 0.168* 0.176* 0.169* 0.171* −0.0160(0.093) (0.092) (0.093) (0.092) (0.094) (0.0117)

∆ Income (×100) 0.356 0.355 0.353 0.358 0.375 −0.0002(0.250) (0.239) (0.253) (0.234) (0.249) (0.0125)


Public Tgt × Stock Deal −1.936** −1.910** −1.966** −1.908** −1.880** −0.0218(0.840) (0.834) (0.833) (0.837) (0.839) (0.0327)


Private Tgt × Stock Deal −0.036 0.037 −0.007 0.058 0.019 0.0026(1.172) (1.170) (1.177) (1.171) (1.178) (0.0323)

Private Tgt × Cash Only −0.832** −0.806** −0.852** −0.809** −0.848** −0.0169(0.327) (0.326) (0.328) (0.325) (0.328) (0.0166)

Subsidiary × Cash Only 0.989*** 0.967** 0.975** 0.957** 0.975** −0.0036(0.372) (0.370) (0.372) (0.370) (0.373) (0.0172)


65

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Tabl

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67

Table I.4: Serial Acquirers, Directors Appointed Prior to the CEO, and Deal VisibilityThis table contains the estimates of regressions of bidder announcement returns on all control variables described in Table E.1. Forbrevity, only the coefficient on the social tie dummy and proxies for monitor/advice are reported. In the first three columns, eachregression is run on a different subsample, depending on the number of past acquisitions by the acquirer. Largest Deal includes onlythe largest deal by each acquirer. Columns 1 Deal, 2 Deals, ≥ 3 Deals include only firms that acquired either once, twice or three timesor more, respectively. All acquisitions from 1980 to the announcement date which meet the same deal requirements used throughoutthe paper are included in the computation of past deals. In the last column Dir Prior to CEO, I include all deals in the sample butconsider only social ties with outside directors appointed prior to the CEO. In Panel A, the monitor/advice factors are used as proxiesin regressions with the same specification as in Column (4) of Table E.1. In Panel B, each row displays the estimate for the interactionbetween Social Tie social ties and each individual proxy for monitoring costs. The specification is the same as in Column (3) ofTable E.1. Panel C is constructed analogously, following the specification in Column (2) of Table E.1. Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.147 −1.842* −2.723** 1.695** −0.894***(0.362) (1.070) (1.302) (0.709) (0.297)

Social Tie × Advice 1.632*** 1.982* 2.562*** 1.310 1.436***(0.453) (1.089) (0.781) (0.914) (0.264)

Social Tie 0.595 −0.613 −0.080 0.209 0.078(0.565) (1.058) (1.376) (0.834) (0.352)




Social Tie × Excess Cash 0.021 0.105 −0.131 −0.032 −0.048*(0.037) (0.083) (0.080) (0.073) (0.028)

Social Tie × High E-index −0.019 −4.418** −1.364 1.765 −1.752***(1.053) (2.145) (2.639) (1.676) (0.577)

Social Tie × Merger Wave 0.128 3.640 3.688 −7.465*** −1.226(1.404) (2.772) (2.952) (2.429) (0.816)

Social Tie × Diversifying × Low ∆ Inc −3.032*** −2.099 −7.924*** 0.468 −2.265***(1.082) (1.734) (2.797) (1.480) (0.641)

Social Tie × Pay-Performance Sensitivity 0.318 0.318 2.023* 0.563 0.436*(0.194) (0.450) (1.073) (0.471) (0.228)

Social Tie × Inst Ownership 0.120 0.301 0.108 −0.427*** 0.220***(0.079) (0.187) (0.178) (0.162) (0.056)



Social Tie × Market Timers 0.786 −0.738 5.661** −0.884 1.944***(1.047) (2.186) (2.505) (1.754) (0.562)

Social Tie × % Informed Outsiders 2.066 5.453** 3.832 −0.695 1.884**(1.498) (2.463) (3.134) (2.639) (0.867)

Social Tie × % Expert Outsiders 1.403 4.830 9.391** 2.243 5.163***(1.589) (2.936) (4.137) (2.693) (0.953)

Social Tie × Low R&D −0.295 −0.251 −0.902 2.065 0.666(1.787) (2.269) (4.793) (2.336) (1.136)

Social Tie × Well Connected Board 3.045*** 4.652** 6.668** 2.272 4.590***(1.047) (1.967) (2.765) (1.810) (0.558)

Social Tie × Centrality 0.051 −0.072 2.697 0.304 0.401(0.826) (1.822) (1.880) (1.384) (0.320)

68

Table I.5: Bidder Announcement Returns for Different SamplesThis table contains average Cumulative Abnormal Returns (CARs) for different samples. The first column displays average CARsacross all the deals that fall into each of the categories described by each row. For continuous variables, categories are definedby using values above or below the median. For instance, High Excess Cash corresponds to deals for which the acquirer’s ex-cess cash is above the median. In the second and third columns, I separate the deals in which the bidder’s CEO is sociallyconnected to at least one of the outside directors in that same company’s board (Social Ties) from those in which no such tiesare present (No Social Ties). The last column contains the difference between the former and the latter. A negative numberthus indicates that the average announcement return is lower when social ties are present. Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.


Full Sample1.373*** 0.720*** 1.572*** −0.852***

(0.101) (0.144) (0.124) (0.238)More Monitoring

High Excess Cash 0.716*** 0.286*** 0.844*** −0.558***(0.073) (0.099) (0.090) (0.174)

High E-index 0.238*** 0.116 0.273*** −0.157(0.047) (0.088) (0.055) (0.112)

Merger Wave 0.165*** −0.032 0.222*** −0.255***(0.040) (0.046) (0.050) (0.095)


Low PPS 0.686*** 0.213 0.885*** −0.672***(0.093) (0.111) (0.124) (0.204)

Low Inst Ownership 0.767*** 0.323*** 0.909*** −0.587***(0.076) (0.106) (0.094) (0.177)

High Monitor 0.608*** 0.242** 0.715*** −0.473***(0.068) (0.112) (0.082) (0.163)

High Mon, Low Adv 0.214*** −0.108 0.307*** −0.415***(0.041) (0.063) (0.049) (0.098)

More Advice

Market Timers 0.899*** 0.663*** 0.969*** −0.306(0.075) (0.105) (0.092) (0.179)

Informed Board 0.665*** 0.436*** 0.733*** −0.297(0.075) (0.112) (0.091) (0.178)

Expert Board 0.481*** 0.441*** 0.492*** −0.052(0.067) (0.113) (0.080) (0.160)

Low R&D 1.174*** 0.780*** 1.291*** −0.511***(0.080) (0.118) (0.098) (0.192)


High Centrality 0.715*** 0.610*** 0.746*** −0.136(0.072) (0.119) (0.086) (0.172)

High Advice 0.605*** 0.730*** 0.568*** 0.161(0.067) (0.113) (0.080) (0.159)

Low Mon, High Adv 0.352*** 0.409*** 0.335*** 0.074(0.051) (0.081) (0.061) (0.121)

N Obs 6,857 1,705 5,15269

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71

Table I.7: Alternative Measures of Friendly BoardsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits. In addition to the main proxy for social ties (Social Tie), I include alternative proxies for friendlyboards. Each column corresponds to a different proxy. In the column Power CEO, Proxy corresponds to an indicator to whether the CEOis also the chairmen or president. CEO Tenure is the (logarithm) of the number of months since the CEO took over. % Board After CEOis the proportion of the board consisting of outside directors appointed after the CEO. % Outside Directors is the proportion of outsidedirectors on the board. In Panel A, the specification is identical to Column 1 of Table V in the main text. In Panel B, quantile regressionsare estimated instead. In Panel C, industry fixed effects are included (in addition to year fixed effects). I also include indicators forcompeting bids and hostile acquisitions. For quantile regressions, bootstrapped standard errors are reported. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.



Social Tie × Monitor −0.434** −0.363* −0.443** −0.3568*(0.185) (0.184) (0.186) (0.1905)


Social Tie 0.397 0.365 0.443* 0.4463*(0.273) (0.262) (0.266) (0.2623)

Proxy × Monitor 0.265 0.027 0.633 −0.9661*(0.304) (0.162) (0.466) (0.5698)

Proxy × Advice −0.267 0.013 0.405 1.6615*(0.256) (0.163) (0.443) (0.9858)

Proxy 0.620** 0.416** 0.543 0.5575(0.284) (0.171) (0.494) (1.1811)




Social Tie × Monitor −0.391 −0.117 −0.669*** −0.3213(0.252) (0.264) (0.258) (0.2551)

Social Tie × Advice 0.831*** 0.549** 0.696*** 0.2119(0.255) (0.273) (0.259) (0.2725)

Social Tie 0.070 0.068 0.643** 0.5617*(0.319) (0.332) (0.323) (0.3234)

Proxy × Monitor 0.009 −0.155 −0.000 −1.1132(0.264) (0.156) (0.524) (0.6896)

Proxy × Advice −0.081 −0.080 −0.235 3.2936***(0.250) (0.162) (0.494) (0.8717)

Proxy 0.811*** 0.390** 1.010** 0.3146(0.246) (0.153) (0.514) (0.9750)



72

Table I.7, Continued



Social Tie × Monitor −0.331* −0.263 −0.320* −0.2286(0.190) (0.190) (0.192) (0.1945)


Social Tie 0.413 0.389 0.452 0.4573*(0.283) (0.271) (0.273) (0.2704)

Proxy × Monitor 0.358 0.055 0.679 −1.0389*(0.309) (0.174) (0.471) (0.5974)

Proxy × Advice −0.214 −0.010 0.553 1.6907*(0.254) (0.162) (0.447) (0.9630)

Proxy 0.555* 0.315* 0.642 0.4634(0.286) (0.185) (0.505) (1.2206)


73

J Other Results and Variable Definitions

Tables

J.1 Outside Directors Appointment Prior to Merger . . . . . . . . . . . . . . . . 75

J.2 Bidder Announcement Returns and Social Ties . . . . . . . . . . . . . . . . 76

J.3 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 77

J.4 Individual Proxies for Monitoring/Advisory . . . . . . . . . . . . . . . . . . 78


J.6 Calendar Time Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80


J.8 Variable Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

74

Table J.1: Outside Directors Appointment Prior to the MergerThis table reports the average number of outside directors hired during one, two, and three-year windows prior to the announce-ment date. In the first column, it reports the average, unconditional number of outside directors hired, as well as the aver-age proportion of the board that number represents (in brackets). The second column, % Connected, contains the averageproportion of these directors that are socially connected with the CEO. The third column contains the average number of out-side directors hired, conditional on at least one outside director being hired. The table contains estimates for the full sampleas well as for four subsamples. The first two correspond to the mergers associated with high advice and with high monitor, re-spectively. The last two subsamples correspond to the clusters of High Advice, Low Monitor and High Monitor, Low Advice.

Outside Directors Hired Prior to the Merger

ConditionalAll % Connected on Hiring

Full Samplet− 3 to t− 1 1.185 6.036 1.835

[0.163] [0.253]t− 2 to t− 1 0.873 6.245 1.659

[0.116] [0.221]t− 1 0.592 6.239 1.497

[0.076] [0.191]

High Advicet− 3 to t− 1 1.314 6.971 1.893

[0.176] [0.254]t− 2 to t− 1 0.955 7.345 1.674

[0.122] [0.215]t− 1 0.650 7.688 1.499

[0.080] [0.184]

High Monitort− 3 to t− 1 1.230 6.572 1.907

[0.161] [0.250]t− 2 to t− 1 0.894 6.503 1.702

[0.113] [0.216]t− 1 0.608 6.857 1.544

[0.073] [0.186]

High Advice, Low Monitort− 3 to t− 1 1.260 6.857 1.821

[0.179] [0.259]t− 2 to t− 1 0.927 7.121 1.644

[0.125] [0.222]t− 1 0.628 6.814 1.463

[0.082] [0.192]

High Monitor, Low Advicet− 3 to t− 1 1.088 6.568 1.828

[0.140] [0.235]t− 2 to t− 1 0.812 5.727 1.680

[0.103] [0.212]t− 1 0.543 4.321 1.496

[0.066] [0.181]

75

Table J.2: Bidder Announcement Returns and Social Ties with a Two-Year Tenure RequirementThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for socialties, monitoring costs, and advisory benefits (Columns (1) to (6)). This table is analogous to Table V in the main text. The dif-ference is that the three-year minimum tenure requirement was relaxed to a two-year requirement. As in Table V, Social Tie isa dummy variable equal to 1 if the CEO is socially connected to at least one outside board member, and 0 otherwise. MonitorFactor is the first principal component factor constructed from the individual monitoring costs proxies. Advice Factor is defined anal-ogously. % of Outside Dirs is the proportion of outside directors on the board (in %). All other controls are defined in Table XI.The last column, Pr(Social Tie), reports (probit) estimates of the probability of a social connection conditional on three additionalexplanatory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centrality measure on the net-work. CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of the fiscal yearpreceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double) clus-tered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)

Social Tie × Monitor −0.508*** −0.488** −0.398**(0.192) (0.198) (0.162)




Social Tie 0.287 0.198 0.188(0.180) (0.168) (0.168)

Monitor Factor −0.033 −0.004 0.164 0.173 0.967 1.057 −0.0010(0.098) (0.103) (0.159) (0.157) (0.707) (0.769) (0.0067)

Advice Factor −0.174* −0.561*** −0.210** −0.552*** −1.309** −1.386** 0.0036(0.098) (0.143) (0.102) (0.141) (0.657) (0.658) (0.0082)

CEO Age 0.0023**(0.0009)


CEO Degree 0.0046***(0.0011)

% of Outside Dirs −0.222 0.231 −0.120 0.095 0.083 0.228 0.2504***(0.752) (0.770) (0.749) (0.768) (0.811) (0.769) (0.0519)

Log Total Assets −0.322*** −0.270*** −0.258*** −0.283*** −0.308*** 0.0291***(0.077) (0.078) (0.076) (0.076) (0.079) (0.0047)

Industry Leverage −0.016 −0.014 −0.014 −0.015 −0.016 0.0008***(0.010) (0.013) (0.013) (0.013) (0.011) (0.0003)

Industry Tobin’s Q (×100) −0.150*** −0.159*** −0.145** −0.155*** −0.152*** 0.0063(0.055) (0.058) (0.061) (0.057) (0.057) (0.0087)

Price Run-up −0.510** −0.502** −0.489** −0.497** −0.505** 0.0003(0.209) (0.197) (0.198) (0.195) (0.207) (0.0075)

Board Size −0.010 −0.021 −0.015 −0.025 −0.001 0.0215***(0.029) (0.029) (0.029) (0.029) (0.029) (0.0021)

Relative Deal Size 0.196*** 0.178*** 0.183*** 0.178*** 0.192** −0.0223*(0.074) (0.067) (0.068) (0.067) (0.073) (0.0127)

∆ Income (×100) 0.362* 0.371* 0.370* 0.372** 0.376* −0.0001(0.203) (0.188) (0.196) (0.179) (0.205) (0.0117)





Private Tgt × Cash Only −0.391* −0.281 −0.334 −0.293 −0.402* −0.0178(0.233) (0.245) (0.242) (0.246) (0.231) (0.0148)



76

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78

Table J.5: Bidder Announcement Returns and Social Ties with Previously Computed Factor LoadingsThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for socialties, monitoring costs, and advisory benefits. The specifications are the same as those in Table V of the main text. However, thefactor loadings that determine the monitor and advice proxies are estimated during the first part of the sample (from 2000 to 2005).These estimated factor loadings are then used to contruct proxies used in the second part of the sample. The sample period usedin this table thus ranges from 2006 to 2011. Social Tie is a dummy variable equal to 1 if the CEO is socially connected to atleast one outside board member, and 0 otherwise. Monitor Factor is the first principal component factor constructed from the in-dividual monitoring costs proxies. Advice Factor is defined analogously. % of Outside Dirs is the proportion of outside directorson the board (in %). All other controls are defined in Table XI of the main text. All variables are measured at the end of the fis-cal year preceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6)

Social Tie × Monitor −0.382** −0.333** −0.304*(0.172) (0.162) (0.180)


% of Outside Dirs × Monitor −1.336* −1.212(0.775) (0.807)

% of Outside Dirs × Advice 2.899* 2.086*(1.531) (1.164)

Social Tie 0.205 0.058 0.075(0.196) (0.191) (0.191)

Monitor Factor 0.001 0.024 0.139 0.131 0.993* 1.025*(0.105) (0.106) (0.158) (0.157) (0.581) (0.578)

Advice Factor −0.154 −0.452*** −0.148 −0.448*** −2.431** −2.050**(0.124) (0.163) (0.125) (0.163) (1.015) (0.928)

CEO Age

CEO Centrality

CEO Degree

% of Outside Dirs −1.432 −0.823 −1.095 −0.838 −0.650 −0.458(1.022) (1.072) (1.098) (1.080) (1.045) (1.118)

Log Total Assets −0.097 −0.083 −0.069 −0.088 −0.097(0.087) (0.092) (0.089) (0.092) (0.090)

Industry Leverage −0.010* −0.011** −0.010* −0.011** −0.010*(0.005) (0.005) (0.005) (0.005) (0.006)

Industry Tobin’s Q (×100) −0.128*** −0.143*** −0.130** −0.140*** −0.138***(0.047) (0.048) (0.051) (0.049) (0.050)

Price Run-up −0.161 −0.158 −0.147 −0.163 −0.169(0.299) (0.302) (0.301) (0.302) (0.299)

Board Size −0.109** −0.112*** −0.108** −0.113*** −0.104**(0.043) (0.041) (0.042) (0.042) (0.041)

Relative Deal Size 0.144*** 0.137*** 0.140*** 0.137*** 0.139***(0.049) (0.047) (0.047) (0.047) (0.049)

∆ Income (×100) 0.694*** 0.644** 0.690** 0.647** 0.667**(0.255) (0.257) (0.267) (0.255) (0.270)

Connections to Target −2.546*** −2.687*** −2.703*** −2.690*** −2.594***(0.653) (0.646) (0.648) (0.640) (0.652)

Public Tgt × Stock Deal −1.695* −1.616 −1.614 −1.619 −1.696*(1.004) (0.995) (1.002) (0.999) (0.991)

Public Tgt × Cash Only 0.336 0.400 0.401 0.401 0.328(0.356) (0.346) (0.347) (0.346) (0.359)

Private Tgt × Stock Deal 1.299 1.163 1.174 1.141 1.216(1.154) (1.173) (1.184) (1.179) (1.157)

Private Tgt × Cash Only −0.530* −0.495* −0.544* −0.502* −0.555*(0.296) (0.286) (0.280) (0.286) (0.294)

Subsidiary × Cash Only 0.674 0.606 0.604 0.609 0.638(0.422) (0.417) (0.419) (0.420) (0.423)

R-squared 0.025 0.027 0.025 0.027 0.028 0.029Observations 3,012 3,012 3,012 3,012 3,012 3,012

79

Table J.6: Calendar Time Analysis with Previously Computed Factor LoadingsThis table reports the effects of social ties on long-term performance and on announcement returns in different samples. This tableis analogous to Table VIII of the main text. However, the factor loadings that determine the monitor and advice proxies are estimatedduring the first part of the sample (from 2000 to 2005). These estimated factor loadings are then used to contruct proxies used inthe second part of the sample. The sample period used in this table thus ranges from 2006 to 2011. In Panels A to C, I use acalendar time portfolio approach to measure the difference in performance associated with social ties. In each case, the underlyingstrategy involves buying (selling) acquirers with (without) friendly boards at the announcement date and holding the position for 360days. The Carhart (1997) four-factor model is used to risk-adjust returns. The table presents the estimates of monthly regressions,in which daily returns are accumulated to produce monthly returns. On each panel, the first row corresponds to the calendar timealpha of the portfolio of friendly boards, while the second row contains the alpha for the portfolio of unfriendly boards. The calendartime alpha of the strategy described above is the row called Friendly - Unfriendly. In the first column of Panel A (Full Sample) alldeals are included. In the second column (High Monitor), only deals in which the monitor factor is above the median are included(i.e., buy (sell) high monitoring costs firms with (without) friendly boards). High Advice estimates are constructed analogously. Thelast two columns correspond to deals that fall in those particular clusters (as defined in Table II of the main text). Estimates inPanels B and C are constructed in a similar manner–each column corresponds to strategies involving only deals with high values formonitoring and advising proxies, as defined in Table IV. In Panel D, I present the results of announcement return regressions for thesame subsamples specified in Panel A. Each regression includes all the controls in Column 1 of Table V. In addition, each regressionincludes a measure of deal visibility, along with its interaction with the social ties dummy. I use three different measures of firm visibility,each corresponding to a different regression specification. These are Analyst Coverage, Media Coverage, and Larger Deals. Thesemeasures are defined in Table XI of the main text. For brevity, I only include estimates of the interaction term. Robust standard errors(double) clustered by year and industry are in parentheses. ∗, ∗∗, ∗∗∗ represents significance at the 10%, 5% and 1% level, respectively.

Panel A - Factors and Clusters

Full High High High Mon Low MonSample Monitor Advice Low Adv High Adv

Friendly Boards 0.054 −0.034 0.277*** −0.215*** 0.380***Unfriendly Boards −0.154 0.153 −0.419*** 0.225 −0.811***

Friendly - Unfriendly 0.209 −0.185 0.696*** −0.438 1.195***(0.159) (0.188) (0.174) (0.274) (0.240)

R-squared 0.903 0.866 0.826 0.803 0.727

Panel B - Proxies for Advisory Needs

Informed Expert External Low Market BoardBoard Board Connections R&D Timers Centrality

Friendly Boards 0.151*** 0.146* 0.245*** 0.033 0.178*** 0.257***Unfriendly Boards −0.096 −0.594*** −0.343** −0.253 −0.084 −0.479***

Friendly - Unfriendly 0.247 0.742*** 0.589*** 0.287* 0.266 0.737***(0.193) (0.175) (0.181) (0.165) (0.187) (0.181)

R-squared 0.854 0.840 0.842 0.902 0.881 0.841

Panel C - Proxies for Monitoring Needs

Excess High Low Inst Diversifying Low MergerCash E-index Ownership Low ∆ Inc PPS Wave

Friendly Boards −0.048 −0.108 0.050 −0.119 −0.108 −0.097Unfriendly Boards −0.029 0.427** 0.248 0.473*** 0.530*** −0.286

Friendly - Unfriendly −0.018 −0.535** −0.195 −0.588*** −0.639*** 0.191(0.161) (0.223) (0.211) (0.183) (0.174) (0.764)

R-squared 0.906 0.783 0.831 0.837 0.892 0.534

Panel D - The Effect of Social Ties and Deal Visibility

Full High High High Mon Low MonSample Monitor Advice Low Adv High Adv

Social Tie × Analyst Coverage 0.595* −0.021 0.818* 0.310 1.684**(0.355) (0.489) (0.477) (0.887) (0.759)

Social Tie × Media Coverage 0.832* −0.295 0.195 −3.319* 0.716(0.435) (0.533) (0.502) (1.983) (0.735)

Social Tie × Larger Deals 0.685* −0.264 1.247** −0.288 2.595***(0.373) (0.397) (0.482) (0.940) (0.714)

80

Table J.7: Bidder Announcement Returns and Social TiesThis table contains the estimates of regressions of bidder announcement returns on many controls and the main proxies for social ties,monitoring costs, and advisory benefits (Columns (1) to (6)). % Friendly Board is the (net) proportion of the board socially connectedto the CEO. Monitor Factor is the first principal component factor constructed from the individual monitoring costs proxies. AdviceFactor is defined analogously. % of Outside Dirs is the proportion of outside directors on the board (in %). All other controls aredefined in Table XI of the main text. The last column, Pr(Social Tie), reports (probit) estimates of the probability of a social connectionconditional on three additional explanatory variables: CEO Age is the age of the CEO, CEO Centrality is the (eigenvalue) CEO centralitymeasure on the network. CEO Degree is the number of outside connections for the CEO. All variables are measured at the end of thefiscal year preceding the announcement date. All regressions include year dummies (not reported). Robust standard errors (double)clustered by year and industry are in parentheses. ∗, ∗∗, ∗ ∗ ∗ represents significance at the 10%, 5% and 1% level, respectively.

(1) (2) (3) (4) (5) (6) Pr(Social Tie)

% Friendly × Monitor −1.627** −1.492** −1.123*(0.818) (0.744) (0.647)

% Friendly × Advice 1.813*** 1.702*** 1.336**(0.587) (0.628) (0.576)



% Friendly Board 1.022 0.223 0.239(0.709) (0.748) (0.741)

Monitor Factor −0.038 −0.033 0.071 0.069 0.932 0.919 −0.0059(0.102) (0.101) (0.140) (0.141) (0.699) (0.693) (0.0069)

Advice Factor −0.197* −0.354*** −0.189* −0.346*** −1.180* −1.052* 0.0044(0.100) (0.127) (0.100) (0.129) (0.623) (0.626) (0.0089)

CEO Age 0.0025***(0.0009)


CEO Degree 0.0052***(0.0013)

% of Outside Dirs −0.835 −0.657 −0.860 −0.705 0.063 −0.652 0.2119***(0.800) (0.795) (0.795) (0.798) (0.820) (0.830) (0.0529)

Log Total Assets −0.439*** −0.437*** −0.438*** −0.439*** −0.299*** 0.0351***(0.114) (0.114) (0.115) (0.115) (0.080) (0.0047)

Industry Leverage −0.016* −0.017* −0.016* −0.017* −0.014 0.0010**(0.009) (0.009) (0.009) (0.009) (0.009) (0.0004)


Price Run-up −0.500** −0.505** −0.497** −0.501** −0.475** 0.0038(0.212) (0.212) (0.211) (0.210) (0.208) (0.0067)

Board Size −0.080* −0.078* −0.079* −0.077* −0.009 0.0240***(0.047) (0.047) (0.047) (0.046) (0.031) (0.0025)

Relative Deal Size 0.226*** 0.223*** 0.227*** 0.222*** 0.192** −0.0184(0.077) (0.077) (0.077) (0.076) (0.074) (0.0120)

∆ Income (×100) 0.366* 0.367* 0.367* 0.369* 0.373* 0.0000(0.206) (0.202) (0.203) (0.198) (0.206) (0.0129)





Private Tgt × Cash Only −0.331 −0.324 −0.341 −0.330 −0.409* −0.0191(0.239) (0.240) (0.238) (0.240) (0.239) (0.0165)



81

Table J.8: Variable Definitions

The sample consists of all mergers from 2000 to 2011 in which: (i) the acquirer is a publicly traded companywith common stock data available on the CRSP tapes at the time of the announcement, (ii) the acquirer gainedcontrol over the target company, (iii) the deal value, as reported by SDC, was at least $10 million, and at least1% of the value of the acquirer at the time of the announcement, (iv) the deal was completed, (v) the acquirer haddata available from Compustat for the fiscal year preceding the merger, and (vi) biographical information on boardmembers was available in either BoardEx or public fillings.NOTE: Compustat variable names are in parentheses.

∆ Income (×100) is the industry-adjusted three-year income growth used by Morck et al. (1990). It isdefined as log(I(t − 1)) − log(I(t − 4)), where I(t − 1) is the sum of net income,interest, and deferred taxes for the fiscal year preceding the announcement.

Advice Factor is the first, rotated, principal-component factor (PCF) associated with the advisingbenefits proxies. The construction of this factor is described in the data section.

Analyst Coverage represent deals in which the number of analysts following the acquirer during theperiod ranging from 360 to 11 days before the announcement is above the median.

Any Social Tie correspond to cases where the CEO and board member share at least one of the socialties described above, excluding employment ties.

Board Size is the number of directors on the board (from BoardEx).

CEO Age represents the age of the CEO.

CEO Centrality is the (eigenvalue) CEO centrality measure on the network, as in Barnea and Guedj(2009) (in %). See Centrality.

CEO Degree is the number of outside connections for the CEO, as in Barnea and Guedj (2009) (in%). Specifically, the number of outside that each director has to other directors in thenetwork is the sum of each row (or column) of the symmetric matrix described underCentrality.

Centrality is the average (eigenvalue) centrality measure for the board (in %). Centrality is com-puted as in Barnea and Guedj (2009). Specifically, for each firm and each year in thesample, I build matrix of director networks. The matrix maps the connections amongthe different directors in the sample. Rows and columns represent all directors in thesample for a specific year. If director i and director j sit together on at least one board,the value of cell (i, j) in the matrix is 1, otherwise it is 0. The diagonal of the matrix(the link between director i and herself) is equal to 0 by definition.

Clubs represents clubs and fraternities.

82

Table J.8 Variable Definitions, Continued

Diversifying × Low ∆ Inc represents diversifying acquisitions following prior three-year below median incomegrowth. See ∆ Income.

E-index is the entrenchment index of Bebchuk et al. (2009).

Education represents education ties, constructed as in Cohen et al. (2008).

Employment Ties represents connections through prior and current employment.

Excess Cash is defined as in Dittmar and Mahrt-Smith (2007). Each year, the following regres-sion is estimated (using all companies in Compustat): ln

(Cashi

NAi+ 1)

= β0 +

β1 ln (NAi)) + β2FCFi

NAi+ β3

NWCi

NAi+ β4 (IndSigmai) + β5

M̂Vi

NAi+ εi, where Cash

is cash and equivalents (che), NA represents net assets (invt - che), FCF is operatingincome (oibdp) minus current liabilities (lct) minus cash (che), IndSigma is the in-dustry average of prior ten-year standard deviation of FCF/NA, M̂V represents pastthree-year sales growth and is used as an instrument for market-to-book, RD standsfor R&D expenditures (xrd) and is set to zero when missing. The residuals are used tocompute excess cash at time t+ 1.

High E-index represents high entrenchment levels as measured by the E-index of Bebchuk et al.(2009). It is equal to 1 when the E-index is greater than 2.

Industry Leverage represents the acquirer’s industry median leverage across all Compustat firms (classi-fied using four-digit SIC codes). Leverage is defined as represents the sum of long-term debt (dltt) and debt in current liabilities (dlc) over common equity (ceq).

Inst Ownership is the (industry-adjusted) proportion of shares outstanding (in %) in the hands of USindependent, non-transient, long-term institutional investors, as defined by Chen et al.(2007).

Larger Deals represent deals in which the acquirer is on the acquirer belongs to the top quintile interms of market equity and the deal represents at least 5% of the acquirer.

Leverage represents the sum of long-term debt (dltt) and debt in current liabilities (dlc) overcommon equity (ceq).

Log Total Assets is the logarithm of total assets (at).

Low R&D indicates R&D below the industry median for that year. R&D is the ratio of R&Dexpenses (xrd) over book assets (at), set to zero if missing.

Market Timers indicates deals in which outside board members’ average 180-day buy and hold returnsare above the median (over the previous three years). Trading returns are computed asin Ravina and Sapienza (2010).

83


Media Coverage is an indicator as to whether either the acquirer or target was covered in the WSJduring the period ranging from 360 to 11 days before the announcement. I impose thesame relevancy requirements as in Tetlock et al. (2008).

Merger Wave identifies merger waves using the procedure in Harford (2005).

Monitor Factor is the first, rotated, principal-component factor (PCF) associated with the individ-ual monitoring costs proxies. The construction of this factor is described in the datasection.

N Outside Dirs is the number of outside directors on the board.

Network Clubs consist of the following organizations: Young Presidents, World Presidents, RotaryClub and Junior Achievement.

Not-for-Profit represents Not For Profit (NFP) organizations such as foundations, art, museums andhumanitarian organizations.

Pay-Performance Sensitivity is the fractional equity ownership (Jensen and Murphy (1990)) computed as in Fryd-man and Jenter (2010). It is the change in executive wealth driven by revaluations ofstock and option holdings. The sensitivity of options to stock price is approximatedby the method developed by Core and Guay (2002).

Price Run-up is the bidder’s buy and hold abnormal return from 230 to 11 days before the announce-ment. The CRSP value-weighted index is used the benchmark.

Relative Deal Size is the value of the deal as reported by SDC over the market value of the acquirermeasured at the end of the fiscal year preceding the announcement.

Same Background represents religious and military organizations, as well as “scouts” groups.

Social Tie is a dummy variable equal to 1 if the CEO is socially connected to at least one outsideboard member, and 0 otherwise. Only social connections that are above what wouldbe expected if connections were random are included. See the data section for moredetails.

Total Assets represents total book assets (at) in $ Bil.

Well Connected Board indicates boards with outside connections above the industry median for that year.Outside connections is defined as is the logarithm of the per-outside-director advisingquality measure developed by Coles et al. (2012). It consists of the average number ofoutside board connections for outside board members.

% Expert Outsiders is the proportion of outside board members who have either served on the board (as aninsider) or held an executive position in a financial company (SIC codes 6000-6999)other than the acquirer.

84


% Friendly Board represents the net proportion of the bidder’s board socially connected to the CEO. It isthe difference between the actual proportion of the directors with ties to the CEO andthe average proportion from 10,000 simulated boards.

% Informed Outsiders is the proportion of outside board members who have either served on the board (as aninsider) or held an executive position in another company in the same four-digit SICindustry code as the target.

% of Outside Dirs is the proportion of outside directors on the board (in %).

85

ReferencesBarnea, A. and I. Guedj (2009). Director networks. EFA 2007 Ljubljana Meetings Paper.

Bebchuk, L. A., A. Cohen, and A. Ferrell (2009). What matters in corporate governance? Review of FinancialStudies 22(2), 783–827.

Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance 52(1), 57–82.

Chen, X., J. Harford, and K. Li (2007, November). Monitoring: Which institutions matter? Journal of FinancialEconomics 86(2), 279–305.

Cohen, L., A. Frazzini, and C. Malloy (2008). The small world of investing: Board connections and mutual fundreturns. Journal of Political Economy Forthcoming.

Coles, J. L., N. D. Daniel, and L. Naveen (2012). Board advising. Arizona State Working Paper.

Core, J. and W. Guay (2002). Estimating the value of employee stock option portfolios and their sensitivities toprice and volatility. Journal of Accounting Research 40(3), pp. 613–630.

Dittmar, A. and J. Mahrt-Smith (2007). Corporate governance and the value of cash holdings. Journal of FinancialEconomics 83, 599–634.

Frydman, C. and D. Jenter (2010). Ceo compensation. Annual Review of Financial Economics 2(1), 75–102.

Harford, J. (2005). What drives merger waves? Journal of Financial Economics 77(3), 529–560.

Jensen, M. C. and K. J. Murphy (1990). Performance pay and top-management incentives. Journal of PoliticalEconomy 98(2), 225–64.

Morck, R., A. Shleifer, and R. W. Vishny (1990). Do managerial objectives drive bad acquisitions? Journal ofFinance 45(1), 31–48.

Ravina, E. and P. Sapienza (2010). What Do Independent Directors Know? Evidence from Their Trading. Reviewof Financial Studies 23(3), 962–1003.

Tetlock, P. C., M. Saar-Tsechansky, and S. Macskassy (2008). More than words: Quantifying language to measurefirms’ fundamentals. The Journal of Finance 63(3), 1437–1467.

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Documents

Costs and Benefits of “Friendly” Boards during Mergers and