This paper extends the corporate governance literature such as Alchian and Demsetz (1972) by analyzing the use of special committees of disinterested directors by target firms during corporate takeovers. Our sample spans post Sarbanes–Oxley from 2003 through 2007, under which boards of directors are subject to increased scrutiny and additional regulatory mandates. This period is also characterized by a high level of management buyout activity that can exacerbate conflicts. Our results show that special committee use is positively related to conflicts and negatively related to factors and situations where insider knowledge is particularly valuable. Moreover, the propensity to form a committee is negatively related to the board's overall independence; hence special committees substitute for the monitoring not found in the overall board composition. Special committees, on average, are formed well in advance of the merger agreement, employ additional financial advisors, and are more likely to run an auction process. Target returns in deals with special committees are no different than deals without special committees. The evidence indicates that special committees enable target boards to adapt to situational conflicts, which helps explain when independent directors matter for corporate governance.

We study the acquisition and divestiture activity of a sample of 1305 firms from 59 industries during the 1990–1999 period. Consistent with the importance of restructuring activity during the 1990s, we find that half of the sample firms are acquired or engage in a major divestiture. Consistent with the notion that economic change is a source of the observed restructuring activity, we find significant industry clustering in both acquisitions and divestitures. We also study the announcement effects of the two forms of restructuring and find that both acquisitions and divestitures in the 1990s increase shareholder wealth. Moreover, the wealth effects for both acquisitions and divestitures are directly related to the relative size of the event. The symmetric, positive wealth effects for acquisitions and divestitures are consistent with a synergistic explanation for both forms of restructuring and are inconsistent with nonsynergistic models based on entrenchment, empire building and hubris.

We provide new evidence on termination provisions and the takeover bidding process. Our central contribution is a novel database from Securities and Exchange Commission (SEC) documents that accurately measures the incidence of termination provisions and the depth of competition in takeover deals. We show that biased data in prior research produced incorrect conclusions on the relation between termination provisions and judicial decisions, bidder toeholds, and deal size. Our comprehensive data also show that termination provisions are positively related to takeover competition. Our evidence is consistent with the information/commitment hypothesis in which termination provisions do not truncate bidding but instead culminate the takeover process.

As measured by the number of bidders that publicly attempt to acquire a target, the takeover arena in the 1990s appears noncompetitive. However, we provide novel data on the pre‐public, private takeover process that indicates that public takeover activity is only the tip of the iceberg of actual takeover competition during the 1990s. We show a highly competitive market where half of the targets are auctioned among multiple bidders, while the remainder negotiate with a single bidder. In event study analysis, we find that the wealth effects for target shareholders are comparable in auctions and negotiations.

We examine the effects of institutional ownership on firms׳ information and trading environments using the annual Russell 1000/2000 index reconstitution. Characteristics of firms near the index cutoffs are similar, except that firms in the top of the Russell 2000 have discontinuously higher proportional institutional ownership than firms in the bottom of the Russell 1000 primarily due to indexing and benchmarking strategies. We find that higher institutional ownership is associated with greater management disclosure, analyst following, and liquidity, resulting in lower information asymmetry. Overall, indexing institutions׳ predilection for lower information asymmetries facilitates information production, which enhances monitoring and decreases trading costs.

We examine the time trends and determinants of the method of payment in M&As spanning four decades. The fraction of mixed payments tripled from about 10% before the turn of the century to 30% in the new century, while the fraction of stock (cash) payments peaked (bottomed out) in the late 1990s but has since plunged (surged). We can explain a portion, but not all, of these trends using explanatory variables linked to adverse selection theory, taxation, and contracting costs. We also show that mixed payments are not merely hybrids between cash and stock payments, but have unique determinants and features.

We study how home-market reporting requirements and listing choices associate with ongoing SEC disclosures by foreign firms and the investor response. The SEC defers material event and interim financial disclosure obligations to foreign firms' home-market regulator or exchange. We find that a growing number of foreign firms incorporate in disclosure havens and have few or no event-driven disclosure obligations. These firms furnish fewer 6-K disclosures, but experience greater investor interest and market response to each filing. There is little evidence that the SEC substitutes for lower information flow with additional monitoring. Our results indicate that the SEC's one-size-fits-all approach to foreign firm disclosure has led to increasing disparity in information flow, despite the strong demand for and reaction to disclosures by firms from weaker regimes.

Using a unique panel dataset that tracks corporate board development from a firm's IPO through 10 years later, we find that: (i) board size and independence increase as firms grow and diversify over time; (ii) board size—but not board independence—reflects a tradeoff between the firm-specific benefits and costs of monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on that influence. These results indicate that economic considerations—in particular, the specific nature of the firm's competitive environment and managerial team—help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained, suggesting that idiosyncratic factors affect many individual boards’ characteristics.

Nearly 40% of IPO firms redact information from their SEC registration filings. These firms exhibit characteristics consistent with the need to shield proprietary information from potential rivals. They experience greater underpricing, but pre-IPO insiders reduce underpricing-related wealth transfers by selling proportionately less of the firm's shares at the IPO, raising more equity financing in later seasoned equity offerings, and selling their own holdings at a relatively slow pace. The information environment of redacting firms reflects proportionately more private information than that of non-redacting firms post-IPO, but this difference abates by the fourth year. Consistent with the view that redacted proprietary information provides competitive advantages, redacting firms exhibit superior financial performance post-IPO. The results illustrate tradeoffs in balancing a firm's needs to protect proprietary information with its capital needs, investor needs for information to price securities, and pre-IPO owner liquidity needs.