Diversity and Ownership
What Makes Better Boards? A Closer Look at Diversity and Ownership Walid Ben-Amar, Claude Francoeur,1 Taieb Hafsi1 and Real Labelle1 Telfer School of Management, University of Ottawa, 55 Laurier East, Ottawa, Ontario K1N 6N5, and 1 HEC Montreal, 3000 Cote-Sainte-Catherine Road, Montreal, Quebec H3T 2A7, Canada Email: [email protected] uottawa. ca, claude. [email protected] ca, taieb. 2. [email protected] ca, real. [email protected] ca This study investigates the joint effect of corporate ownership and board of directors’ diversity con? gurations on the success of strategic merger and acquisition (M&A) decisions.
Board diversity is de? ned as the extent to which its demographic diversity as measured by the culture, nationality, gender and experience of its directors complements its statutory diversity. A theoretical framework linking ownership, board diversity and M&A strategic decision making is proposed and tested. Based on a sample of 289 M&A decisions undertaken by Canadian ? rms over the period 2000–2007, demographic diversity is found to have a clear and non-linear effect on M&A performance while statutory diversity is of limited in? uence. Ownership is found to in? uence the effect of diversity, making the relation ?
ner and more precise. This has practical implications. First, statutory diversity is not suf? cient for well-performing boards.
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rm performance have been extensively studied and yet it seems that we know little about the issue. Con? icting ? ndings, unclear or unclean methodologies, leave scholars and managers in a quandary. The ? rst important reason for such a situation is the dominant use of agency theory premises that statutory diversity (SD) is all that counts to control management and provide it with incentives to protect shareholder value (Fama and Claude Francoeur and Real Labelle gratefully acknowledge ? nancial support from the Social Sciences and Humanities Research Council of Canada (Grant 4102011-2639), the Stephen A.
Jarislowsky Chair in governance and the CGA Professorship in Strategic Financial Information. Taieb Hafsi acknowledges support from the Montreal Interuniversity Institute of Governance (IGOPP), from the Rebrab, and from the Somers families. Jensen, 1983). SD is mandated by law or best practices and is often reduced to board members’ independence from management. The second important issue is the belief that there is a linear relationship between diversity and performance. This is questioned by both logic and extant research (Manzoni, Strebel and Barsoux, 2010; Milliken and Martins, 1996).
The third important issue is ownership. It is increasingly believed that different owners pursue different goals, even when they share the same kinds of assets. This may have signi? cant effects on ? rm governance and ultimately performance (Sur, 2009). In this study, we propose what we believe is a more convincing theory and ? ner empirical ? ndings by considering these issues. To do so, we recognize that SD has an effect, but we consider such effect to be contingent on individual characteristics of actual board members, or demographic diversity (DD), and on the nature of owners.
SD, and in particular DD, are measures © 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA. 86 of pluralism or heterogeneity in the composition of boards of directors. This is seen as breeding a higher level of openness and decision making analytical quality, and despite expected dif? culties in reconciling the resulting variety of perspectives, leading to better decisions (Erhardt, Werbel and Shrader, 2003; Watson, Kumar and Michaelsen, 1993).
In the second section of the paper, our examination of the literature supports these assertions and is used to build a theoretical model and develop hypotheses. Then, we subject the model and hypotheses to various statistical tests using a sample of 289 merger and acquisition (M&A) decisions undertaken by Canadian ? rms over the 2000–2007 period. As in McDonald, Westphal and Graebner (2008), we focus on M&A decisions as it might reasonably be expected that boards exercise greater in? uence on acquisition performance than on overall ?
rm performance, the latter being related to a wider array of organizational and environmental factors (Hermalin and Weisbach, 2001). The following section describes the ? ndings, and in particular the joint effects of SD, DD and ownership on ? rm performance. In the ? nal section, these ? ndings and the methods used are discussed, and a few concluding comments and suggestions for future research are offered. W. Ben-Amar et al. the tenure of directors. These differences may explain why Molz’s (1988, 1995) proposition that performance is related to pluralism was not supported by his empirical investigations.
Neither social (Molz, 1995) nor ? nancial (Molz, 1988) performance was found to be signi? cantly related to pluralism. The framework presented in Figure 1 structures and motivates what we do. It underlines the dual but complementary ? duciary and advisory governance roles the board plays in strategic decision making, given the ? rm’s ownership structure. From a ? duciary or statutory perspective, the board is deemed to indirectly in? uence ? rm performance by focusing on decision control to minimize agency costs.
This monitoring role, where independence and related statutory board characteristics are assumed to ensure better representation and protection of minority shareholders’ interests, has been the main proposition of agency theory (Fama and Jensen, 1983) and the focus of most governance research and reforms, such as Sarbanes-Oxley. From such a perspective, board effectiveness is measured in terms of its independence from management or SD. This means that the diversity of incentives between outsiders and insiders represented on the board should help them meet their ?
duciary obligations (Fama, 1980; Hillman, Nicholson and Shropshire, 2008; Jensen and Meckling, 1976) and keep managerial discretion within proper bounds. However, the results of empirical research on the relation between performance and statutory independence are mixed (Bhagat and Black, 2002). This may not come as a surprise given that in theory, as described in our framework, the main goal of ? duciary governance is to minimize agency costs, thus only indirectly affecting the strategic decision making process. This is the basis of our ?
rst hypothesis where we test the relationship between SD and M&A performance. In contrast, the left-hand side of the proposed framework asserts that board members are a key resource and directly contribute to better strategic decision making (Raatikainen, 2002). By questioning, criticizing, advising and counselling, they enhance the strategic decision making process. They also provide ‘access to channels of information between the ? rm and environmental contingences, preferential access to resources, and legitimacy’ (Hillman, Withers and Collins, 2009, p. 1408).
So, given that SD may be necessary but Theoretical framework and hypotheses development The question of what impact board characteristics have on ? rm performance is among the most extensively researched topics in the large body of corporate governance research (McDonald, Westphal and Graebner, 2008). The ? rst attempt to explain performance, taking into account the interactions among the factors that make up diversity and independence, was Molz’s (1988, 1995). He developed a pluralism index to that effect, and classi? ed boards into management dominated and pluralistic.
In contrast to what we are proposing in this paper, Molz (1988, 1995) did not distinguish between DD and SD, lumping them together, and did not take the ? rm’s ownership structure into account. Furthermore, his model only integrated gender diversity while we also include diversity of culture and experience as measured by the presence of foreign directors and © 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. What Makes Better Boards? 87 Figure 1. Ownership, diversity in corporate governance and board strategic decisions: theoretical framework not suf?
cient to materially in? uence corporate value, other theories based on the provision of resources, competences and cultural values (Barney, 1991; Hillman, Nicholson and Shropshire, 2008; Selznick, 1990) must be harnessed to complement the insights of agency-based theories and to better understand the governance– performance relation. From this advisory perspective, board effectiveness also requires a diversity of cultures, experiences and genders, referred to as demographic diversity (DD), in order to guide and contribute to organizational learning and improved management strategic decision making.
The emphasis is on the directors’ ability to counsel and ‘mentor’ rather than ‘monitor’ management. DD goes beyond SD, which mainly promotes ? nancial literacy and the need for a diversity of incentives between management and shareholders. Although minority investors’ protection still matters, under this perspective a greater consideration is given to all stakeholders and DD is intended to foster greater pluralism on the board. We de? ne board diversity or pluralism as the extent to which its demographic characteristics complement its statutory characteristics. DD is a
broad construct (Hambrick and Mason, 1984) that may include measurable demographics including innate characteristics which are social, racial, cultural diversity, and acquired characteristics related to life experience. In this research, DD refers to the participation of women and foreign directors with diverse cultures on the board as well as to the experience of directors as measured by their tenure. 1 Knowledge and competences per se are seen as exogenous. In other words, all ? rms are assumed to select their directors with the objective of optimizing the level of knowledge and competence obtained.
It is their decision relative to the mix of SD and DD which may make a difference. Board diversity is expected to be positively related to ? rm performance, especially in situations of complex decisions, because both DD and SD should enhance the board’s overall quali? cations and lead to better debates, thus triggering 1 Racial diversity on boards was not included in our index as this information was not available in the proxy statements from which we manually collected the data. To the best of our knowledge, this information is not available in any other public database in Canada.
© 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. 88 better M&A decisions (Erhardt, Werbel and Shrader, 2003; Watson, Kumar and Michaelsen, 1993). Our research design distinguishes the effects of ‘statutory’ diversity or highly recommended ‘best practices’ from ‘voluntary’ DD on ? rm performance. This leads to our second hypothesis that there is a relationship between a ? rm’s level of DD and the success of its M&A decisions. However, as in Luis-Carnicer, Martinez-Sanchez and PerezPerez (2008) and because heterogeneous groups have to work through their communication problems and con?
icts to end up making better decisions, we expect a curvilinear relationship between DD and M&A performance. Agency theory and recent governance reforms, which are mainly concerned with SD, have been respectively formulated and initiated in the context of the US capital market where corporate ownership is relatively more widely held than elsewhere in the world (La Porta, Lopez-De-Silanes and Shleifer, 1999). Furthermore, Sur (2009) and Klein, Shapiro and Young (2005) have shown that governance arrangements and ? rm performance are related to ownership characteristics.
Thus, our last hypothesis concerns the presumed joint effect of ownership and governance con? gurations on performance. Referring to the theoretical framework presented in Figure 1, we shall now ? rst justify why we distinguish board of directors SS and DD given the ? rm’s ownership structure, then organize the relevant governance and M&A literatures and ? nally develop hypotheses on their relative effects on M&A performance. Statutory board diversity ‘Statutory’ board diversity (SD) refers to the regulation-mandated or highly recommended governance ‘best practices’ or guidelines put forward in several countries. 2 SD recommenda2 W.
Ben-Amar et al. tions are based on the assumption that a board of directors’ independence from management enhances its monitoring function and indirectly improves performance (Fama and Jensen, 1983; John and Senbet, 1998). SD includes regulated or recommended governance practices, including in particular a higher proportion of outside directors on the board and the separation of the functions of CEO and chairperson of the board, generally referred to as the leadership structure. These are designed to foster a greater diversity of interests or incentives than if executive directors or dominant shareholders were controlling the board.
It also includes such other ‘best practices’ as encouraging share ownership by directors to further align their interests with those of all shareholders. Theoretical and empirical governance research (Dalton et al. , 1998; John and Senbet, 1998) has examined most of agency theory’s propositions, in particular that the board of directors monitoring function is an important pillar of a ? rm’s corporate governance system. As described on the right-hand side of Figure 1, from that ? duciary perspective, SD is assumed to indirectly improve the board’s effectiveness in creating value through minimizing agency costs.
In other words, loss to the principal resulting from interests’ divergence may be curbed by imposing governance or decision control structures to the agent. In so doing, agency costs are minimized, which indirectly affects value creation. To examine SD, we build a SD index based on four proxies, all widely used in the governance– performance empirical literature, to measure the board’s independence. These are the leadership structure, the proportion of outside directors in total board membership and the levels of ownership by inside and outside directors. Empirical tests of the relation between traditional proxies for SD and ?
rm performance are generally inconclusive (Dalton et al. , 1998). According to Bhagat and Black (2002, p. 265), ‘a priori, it is not obvious that independence (without knowledge or incentives) leads to better director performance than knowledge and strong incentives (without independence)’. This may not come as a surprise for two reasons. First, according to stewardship theory, there are ‘situations where executives as stewards [including those that are sitting as directors] are motivated to act in the best interests of their principals’ (Davis, Schoorman and Donaldson, 1997, p.
24). Second, as shown in For instance, in the USA, ‘listed companies must have a majority of independent directors’ on their board (section 303A. 01 of the New York Stock Exchange Listed Company Manual). Canada employs a principlesbased approach to corporate governance through the implementation in National Instrument 58-101 and National Policy 58-201 of best practices guidelines. This approach is in combination with a mandatory ‘Statement of corporate governance practices’ in the ? rm’s annual report or proxy statement as to the extent of compliance with such guidelines.
© 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. What Makes Better Boards? our framework, according to agency theory the main goal of ? duciary governance is to minimize agency costs, and thus improve performance, though indirectly. Agency costs, and the effect of SD, may be particularly important in major strategic decisions such as M&As, which justi? es our desire to test the following hypothesis: H1: There is a positive relationship between a ? rm’s board SD and the quality of its board strategic decisions. 89 to the strategic issues that the organization is confronted with.
There may also, however, be an intriguing mediating effect of beliefs in diversity on group performance, as developed by van Knippenberg, Haslam and Platow (2007). According to this psychological perspective, when groups value diversity they may be better able to use it fruitfully. In contrast, when either diversity is unexpected or its impact is downplayed, its effects may be depressed. 3 Nevertheless, board DD could also produce integration dif? culties, result in poorer strategic decisions in contexts that require fast decisions (Milliken and Martins, 1996), and even ‘back?
re on company boards’ (Manzoni, Strebel and Barsoux, 2010). In the context of top managers, Hambrick, Cho and Chen (1996) indicate that heterogeneity is negatively related to the possibility of reaching a consensus in a decision making process. 4 According to them, heterogeneity slows down the process by which strategy is formulated and could considerably impair the decision making performance of managers and, ultimately, of the ? rm’s board members. Diversity increases creativity (Pelled, Eisenhardt and Xin, 1999), but also con? ict (Jehn, 1995), and decreases commitment and communication (Tsui, Egan and O’Reilly, 1992).
Prior research on diversity has mostly examined the relation between one factor of DD at a time and organizational performance. In this research, we test the joint effect of gender, culture or nationality and tenure of board members on M&A performance. Gender diversity. The complexity of board heterogeneity effects may explain that results of extant research on the relationship between board and top management gender diversity and ? nancial performance are mixed and inconclusive (Adams, Gupta and Leeth, 2009; Carter, Simkins and Simpson, 2003; Daily, Trevis and Dalton, 1999; Erhardt, Werbel and Shrader, 2003; Haslam et al.
, 2010; Shrader, Blackburn and Iles, 1997). For instance, Adams, Gupta and Leeth (2009) 3 Demographic diversity In the previous section, we referred to the stream of ? duciary governance research which mainly resorts to agency theory to examine the board of directors’ effectiveness. We now turn to advisory governance (left-hand side of Figure 1), which focuses on the board as a provider of key resources. There is substantial evidence (see Hillman, Withers and Collins (2009) for an overview) that boards of directors play an important advisory role in corporate strategic decisions. From this advisory perspective, DD as more precisely speci?
ed later in this section is assumed to enhance the skills and general competence of boards of directors and directly impact strategic decision making and performance. According to Hillman and Dalziel (2003) and Westphal (1999), directors are in a position to affect strategy by providing advice and social support to the CEO. They can also affect the organizational context within which strategic decisions are made (McNulty and Pettigrew, 1999). Hambrick and Mason (1984), focusing on the top management team, argue that demographic heterogeneity enhances the ability to deal with strategic change.
More recently, building on their work on upper echelons of management, Hambrick (2001), Canella, Park and Lee (2008) and Hambrick, Werder and Zajac (2008) extend the theory to address the issue of diversity on the board. Raatikainen (2002) asserts that diverse groups make better decisions, which may lead to better performance. Diversity improves the knowledge base, the creativity and the quality of the decision making and monitoring processes of a group (Erhardt, Werbel and Shrader, 2003; Watson, Kumar and Michaelsen, 1993). Furthermore, Milliken and Martins (1996) suggest that diversity of quali?
cations engenders favourable board dynamics and fosters innovative solutions We gratefully acknowledge that this argument has been suggested and developed by one of this paper’s reviewers. 4 One of the reviewers wondered whether consensus was necessary. We believe that in major M&A decisions, it is important for the board to show a united front. A simple majority decision is an ominous signal that may cast a shadow on the value to the ? rm of the M&A operation. © 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. 90 ? nd no difference in ? rms’ ?
nancial performance around the appointment of a woman or a man as a CEO in the USA. Haslam et al. (2010) also report that there is no association between women’s board representation and accountingbased performance measures but they ? nd a negative correlation with stock-based performance measures. In exploring the relationship further, Francoeur, Labelle and Sinclair-Desgagne (2008) document a positive relation between gender diversity and ? nancial performance in the case of ? rms operating in riskier environments. The presence of women on boards appears to help deal with more complex strategic issues.
Recently, Adams and Ferreira (2009) show that female directors have a signi? cant impact on board inputs and governance. More speci? cally, genderdiverse boards allocate more effort to monitoring management, but the true relation between gender diversity and ? rm performance is complex. For instance, these authors ? nd that the relation between gender diversity and ? rm performance is contingent upon the quality of governance. ‘We ? nd that diversity has a positive impact on performance in ? rms that otherwise have weak governance, as measured by their abilities to resist takeovers.
In ? rms with strong governance, however, enforcing gender quotas in the boardroom could ultimately decrease shareholder value’ (Adams and Ferreira, 2009, p. 308). Overall, empirically, gender diversity is found to be either positive or neutral vis-a-vis performance. Culture or nationality diversity. Oxelheim and Randoy (2003), Choi, Park and Yoo (2007) and Ruigrok, Peck and Tacheva (2007) have explored the effect of foreign directors’ representation on the board’s processes and dynamics and ultimately on ? rm performance. Their ? ndings con? rm the dialectic mentioned earlier.
On the one hand, in agreement with the resource dependence perspective, foreign directors’ cultural knowledge and expertise in foreign markets is bene? cial (Ruigrok, Peck and Tacheva, 2007). In particular, foreign directors extend board international exposure and its network of contacts, an important source of competitive advantage in international acquisition strategies. On the other hand, diversity of nationalities on the board may create communication and integration problems. In particular, misunderstandings and con? icts among board W. Ben-Amar et al.
members can affect the time value and the accuracy of decisions (Ruigrok, Peck and Tacheva, 2007). Empirical tests generally con? rm the positive effect of foreign directors on ? rm performance. Oxelheim and Randoy (2003) document that Swedish and Norwegian ? rms with AngloAmerican outside directors have higher valuations than comparable ? rms without foreign outside directors. Choi, Park and Yoo (2007) also report a positive effect of foreign directors on ? rm performance in the Korean context. So, in general, international diversity among board members can be expected to have a positive effect on performance.
Directors’ tenure. According to organizational demography research, tenure in a group has an effect on ? rms’ performance (Kosnik, 1990), strategic actions, and strategic change (Golden and Zajac, 2001). As their association with a board lasts, directors’ experience and familiarity with the corporation’s speci? c governance issues and problems increase (Kesner, 1988). Directors with longer board experience also better understand the ongoing management team practices and can carry their oversight responsibilities with greater skills.
Experienced directors can also contribute to company strategy (Bilimoria and Piderit, 1994) and have a better understanding of the ? rm’s resources and operations (Alderfer, 1986). In contrast, newly appointed directors may be captured by the incumbent CEO (Finkelstein and Hambrick, 1988). However, tenure diversity may have negative consequences as well. Katz (1982) suggests that longer tenure is associated with greater rigidity, increased commitment to established practices and procedures, and increased insulation from new ideas.
According to the management friendliness hypothesis (Vafeas, 2003), directors with long board tenure are less effective at monitoring management, which increases the chances of CEO entrenchment. Vafeas (2003) argues that extended tenure may reduce intragroup communications and lower the quality of ? rms’ decisions. This study shows that the participation of senior directors in the compensation committee is associated with higher compensation payments to the ? rm’s CEO. In summary, long tenure is useful and leads to better performance, but pushed to the extreme it leads to groupthink and the tendency to suppress con?
icts, even at the expense of good decisions. © 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. What Makes Better Boards? Overall, DD is seen as having a positive effect. But there are situations where negatives are also observed. This mixed evidence suggests a nonlinear relationship with performance. Diversity has to be signi? cant before it can be domesticated and made acceptable to all board members (van Knippenberg, Haslam and Platow, 2007). When it is, it improves performance. This leads to our second hypothesis.
H2: There is a non-linear relationship between a ? rm’s board DD and the quality of its board strategic decisions. Low levels of DD diminish the quality of board strategic decisions while higher levels of DD enhance it. 91 family governance, ? rst in terms of coherence, trust (Eddleston et al. , 2010; Steier, 2001) and long-term orientation of board members (Le Breton-Miller and Miller, 2006). Introducing SD in family ? rms’ boards reduces reluctance towards R&D investment (Chen and Hsu, 2009) and voluntary disclosure (Chau and Gray, 2010). Anderson and Reeb (2004) have also shown that public ?
rms where independent directors balance family board representation perform better. However, higher levels of diversity are likely to lead to con? icts and loss of ? rm-speci? c knowledge detained by family members (Dyer, 2006; Jones, Makri and Gomez-Mejia, 2008). We therefore suggest that board strategic decision making may be adversely affected when the levels of SD and DD in place are too high. This leads to our last hypothesis. H3: In the presence of high ownership concentration, low levels of diversity (SD and DD) enhance the quality of board strategic decisions while higher levels of diversity diminish it.
The ownership factor in governance Finally, Figure 1 shows that the diversity of the board or its composition is affected by the ? rm ownership con? guration. This re? ects the ? ndings of studies conducted in the USA by Sur (2009) and in Canada by Klein, Shapiro and Young (2005). Sur (2009) shows that board composition, strategic decisions and performance are all related to ownership. He proposes three ownership types other than the widely held ? rms: institutional, family and corporate blockholder. For dispersed outside investors, the main concern is the quality of SD to ensure that managers’ opportunism is kept in check.
Institutional behaviour is geared at maximizing shareholders’ value within well diversi? ed portfolios; corporate blockholder behaviour is guided by the strategy of the dominant owner; and owners of family ? rms are less diversi? ed and dominated by ideological or value considerations (Sur, 2009). In Canada, Klein, Shapiro and Young (2005) also conclude that the effect of board independence or SD on performance differs by ownership category. So, a higher level of diversity, be it SD or DD, is not a panacea for all types of ? rms in board strategic decision making.
Using a similar typology as in Sur (2009), we argue that ? rms characterized by high ownership concentration such as family ? rms will bene? t more from low levels than from high levels of SD and DD. Introducing DD in the board at low levels may bring new ideas and perspectives to the directors representing institutions or the controlling family without threatening their coherence. In general, there are indeed clear advantages to close-knit Control variables Prior research identi? es several variables that are deemed to affect M&A success.
A high relative size of the target company to the acquirer (Asquith, Bruner and Mullins, 1983; Kohers and Kohers, 2000) and paying in cash (Huang and Walking, 1987; Travlos, 1987) are factors that are generally viewed as favourable by the market. In contrast, acquiring public targets, compared with private ones, is generally associated with lower performance (Faccio, McConnel and Stolin, 2006; Fuller, Netter and Stegemoller, 2002). Cross-border transactions create value for the acquiring ? rm by exploiting market imperfections in outside markets (Eun, Kolodny and Scheraga, 1996). However, integration costs and cultural problems could
undermine these gains. Empirical results have been somewhat mixed (Cakici, Hessel and Tandon, 1991; Eun, Kolodny and Scheraga, 1996; Faccio, McConnel and Stolin, 2006). Technology-based industries are characterized by high growth potential and high risk due to the uncertainty associated with the complexity of their activities and the unproven nature of technology used within these companies (Kohers and Kohers, 2000, 2001). Finally Datta, Pinches and Narayanan (1992) note that the relatedness, © 2011 The Author(s) British Journal of Management © 2011 British Academy of Management.
92 among the acquiring and target ? rms’ activities, is a key determinant of the level of value creation in their merger. Synergies are indeed easier to achieve when the merged ? rms operate in the same type of business (Rumelt, 1982). Table 1. Sample selection W. Ben-Amar et al. Raw data from Thomson-SDC Less: income trusts Less: overlapped transactions in estimation period Less: missing returns in CFMRC database Less: missing predictor variables in SEDAR Final sample 941 (294) (110) (168) (80) 289 Data and methodology In this section, we ? rst explain why we selected a sample of M&As conducted by Canadian ?
rms to examine the joint effect of ownership and diversity on the success of M&A strategic decisions. We then present the dependent and independent variables of our empirical model. Institutional setting and sampling procedure The Canadian institutional setting offers a particularly good ‘laboratory’ to study ownership and diversity con? gurations and their joint relation with performance. With regards to ownership, its mix of closely and widely held ? rms is representative of corporate ownership around the world (Denis and McConnell, 2003; Faccio and Lang, 2002; La Porta, Lopez-De-Silanes and Shleifer, 1999).
Yet, its mostly voluntary principles-based approach to corporate governance is signi? cantly different from the US mostly rules-based approach (Broshko and Li, 2006) and the resulting managerial latitude may thus be more conducive to a broader diversity. Our ? nal sample consists of 289 observations covering 206 acquiring ? rms. Table 1 summarizes the sample selection process. Empirical model The resulting model is described in more detail later but can be summarized as follows: M&A performance (dependent variable).
M&As offer the right context within which to test the contribution of diversity in governance to enhanced decision making. M&A decisions are strategic, complex and fraught with uncertainty. Also, complex strategies and decisions of M&As are typically under the responsibility of top management and the board of directors. Given the uncertainties related to both the transaction itself and the future integration of the ? rms involved, M&As are likely to reveal disagreements among and a greater involvement of board members. In line with research on the impact of M&As on shareholders’ wealth, we use the Brown and Warner