Financial economists have long recognized that the widespread separation of ownership and control in large corporations creates the potential for costly agency conflicts. This paper exploits the banking industry's recent M&As to explore what corporate governance characteristics are associated with managers acting in shareholders' best interests. Using the sample of publicly traded banks at year-end 2000 in different countries and a variety of empirical methods, in contrast to existing research on industrial firms, we examine the relation between corporate governance, particularly board ownership, and M&A in the banking industry between 2001 and 2003. We find that board structure does not help determine which sample banks sell. Neither the fraction of outsiders on a bank's board nor having an outside-dominated board differentiates the target banks in our sample. Instead, outside directors/shareholders and blockholders appear to be primarily responsible for encouraging bank managers to accept an attractive merger offer. We also find a greater frequency of outside blockholders in the banks that become targets, suggesting that large non-director shareholders can also encourage banks to act in shareholders' best interests.

Acquisitions & mergers
International
Studies
Correlation analysis