Investor reaction to acquisition announcements.

In this paper, we examine the abnormal returns for acquiring firms during acquisition announcements when the founder serves on the board of directors. In addition, we investigate how this relationship is influenced by the following corporate governance variables: firm’s choice of unitary or dual leadership structure, proportion of independent directors serving on the board of directors and the proportion of equity ownership held by independent directors or institutional investors. We tracked the acquisition activities of 85 SGX firms from 2005 to 2006 and first established that acquiring firms on average experience positive abnormal returns. However, we find that when the founder is present, the acquiring firm experience lower abnormal returns. In addition, this negative association is strengthened when independent directors or institutional investors held higher proportion of equity ownership. On the other hand, we did not find any significant relationship between the firm’s choice of leadership structure and ratio of independent directors serving on the board with the acquiring firm’s abnormal returns. This is contrary to our theoretical predictions and led us to question the effectiveness of such tools of corporate governance when the founder is present on the board.BUSINES