| A merger marks the demise of the target firm as a stand-alone firm. The limited availability of board seats after the merger, coupled with directors' fear of ex-post settling by the managerial labor market spurs competition between management teams of bidder and target banks in an attempt to win board seats on the combined bank.; For all target bank directors, it seems that their banks' financial health prior to the merger helps them compete for a board seat. Also, target banks with larger boards that have a high proportion of outsider board members are more powerful in negotiating for a board seat in the combined bank's board than target banks that lack such characteristics. Moreover, target banks whose market value, and activities are close to those of the bidder banks allow more target banks' directors to join the combined bank's board. On the other hand, target banks' boards that show signs of entrenchment are poor competitors for board seats in merger's negotiations.; Unlike the case for abnormal returns of corporate mergers, abnormal returns of banks' mergers were generally higher when targets' directors joined the combined bank's board than it was the case when they did not join. Moreover, as compared to its reaction to target banks' insider board members' joining of the combined bank's board, the stock market reacted more positively when target banks' outsider board members joined the combined bank's board. Apparently, in merger settings, target banks' directors suffer from agency conflicts to a lesser degree than target corporation's directors. And within target bank's directors, bank's outsider board members suffer from agency conflicts to a lesser degree than bank's insider board members. An important implication of these results is that corporate results can not be directly extended to banks. |
