Investors’ Perceptions of Managerial Opportunism in Corporate Acquisitions: the moderating role of environmental conditions

Abstract

I argue and found that the effectiveness of a firm's monitoring mechanisms to prevent managerial opportunism in acquisitions becomes more important under high environmental complexity and/or dynamism because of the increased information asymmetry between investors and top executives under these conditions. I also found that increased monitoring under non-complex and/or stable environments may be viewed negatively by investors, and that symbolic information about governance arrangements affects investors' evaluations of managerial opportunism in acquisitions. The results highlight the need for more research on factors that influence the explanatory power of agency theory. Copyright (c) 2006 The Author; Journal compilation (c) 2006 Blackwell Publishing Ltd.

Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective

“…Agency theory would suggest that investors are less likely to perceive managerial opportunism in M&A if they are undertaken by companies with effective corporate governance mechanisms (Corenett, Hovakimianb, Paliac, & Tehranian, 2003;Kang, 2006;Kroll, Wright, Toombs, & Leavell, 1997;Matsusaka, 1993). This creates a conundrum for Chinese publicly-listed firms in which government is the dominant owner and is responsible for the monitoring role.…”

“…Also in more complex environments, it is more difficult for investors to determine whether a specific strategic decision is in their interests. In short, there is greater information asymmetry between decision-makers and investors in complex environments (Kang, 2006). Therefore, in complex environments, investors have to rely on arms-length monitoring mechanisms to assess the value of announced acquisitions.…”

“…Consequently, the reciprocal of β 1 was used as a measure for environmental complexity, where a larger reciprocal value indicated greater environmental complexity (Kang, 2006).…”

Managerial Risk-Taking Behavior: A Too-Big-To-Fail Story

“…First, we controlled for whether the board chair is independent by including a dummy variable coded one if the board chair is an independent director, and zero otherwise (Coles and Hesterly 2000). Second, we controlled for ''board vigilance'' in monitoring by first standardizing the proportion of independent directors and the proportion of equity held by independent directors and then summing these two standardized measures (Finkelstein and D'Aveni 1994;Kang 2006). Both independent chair and board vigilance collectively measure the extent of board independence.…”

The Strategic Role of the Board: The Impact of Board Structure on Top Management Team Strategic Action Capability

“…We propose that each distinct board configuration promotes different levels of speed and breadth in a TMT's strategic action capabilities. Furthermore, we adopt a perspective in which the effectiveness of a particular configuration is influenced by a firm's competitive environment (Kang, 2006). We identify two key environmental factors that influence the performance implications of each configuration: dynamism, which influences the need for strategic speed; and complexity, which determines the appropriate level of strategic variety.…”