April 21, 2015
This paper examines whether the active engagement of target firm directors in the sale process affects merger outcomes. Using data manually extracted from merger-related SEC filings, I create two measures of target board involvement in merger negotiations: the number of days it takes for the board to meet after the beginning of the sale process and the number of board meetings held throughout the entire process. I find that early board involvement in merger talks increases target shareholder returns and premiums, especially when shareholders have weak control over their firms and are thus in greater need of board protection. Although the two measures of target board activity do not affect acquirer or combined cumulative abnormal returns or the likelihood of competition, such activity does reduce the likelihood of an excessive target termination fee. Robustness analyses dismiss an alternative explanation whereby attractive initial bids lead to both early board involvement and attractive final bids.