Corporate governance structure and strategic change: evidence from major acquisitions

When major reallocations of the firm’s assets are necessary, a balance in the corporate governance structure favoring the CEO can be a necessary condition for planning and initiating major strategic moves. The purpose of this paper is to examine firms making major acquisitions to identify corporate governance elements that are particular to undertaking major strategic initiatives.

The authors test the proposition that firms making major strategic acquisitions will exhibit a corporate governance structure that is different in a number of its governance elements from firms making other acquisition decisions. The authors categorize the elements of corporate governance structures into CEO characteristics, internal monitoring, external monitoring and CEO compensation.

The authors find the propensity of acquiring firms to make major strategic acquisitions is abetted by the CEO’s attributes and compensation, by the structure of the audit committee and compensation committee, and by the firm’s prior financial performance.

The analysis of firms making major acquisitions presents the corporate governance dynamics of an environment that is conducive to strategic risk taking.