Finance theory predicts that board independence is not always in the shareholders׳ interest. in situations in which board advice is more important than monitoring, independence can decrease firm value. I test this prediction by examining the connection between takeover returns and board friendliness, using social ties between the CEO and board members as a proxy for less independent boards. I find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high. The evidence suggests that friendly boards can have both costs and benefits, depending on the company׳s specific needs.

We show that acquisitions initiated during periods of high merger activity (“merger waves”) are accompanied by poorer quality of analysts' forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, merger waves may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during merger waves is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions.