Prior Performance and Corporate Governance Characteristics of Acquirers

Recent empirical research has proposed a variety of factors that explains the decision of companies to merge or acquire. We use a binary logistic regression framework to investigate the effects that prior firm performance, prior resource availability, and corporate governance characteristics have on the propensity of a company to become active. The analysis focus on American companies in the timeframe from 1997 until 2006 and compare the active companies to a set of inactive peers. In line with previous research, results suggest that poorly performing companies show a higher probability to demonstrate activity in merger and acquisitions. Furthermore, we find support for the prediction that companies well endowed with financial resources and companies with inferior corporate governance show a higher propensity to engage in merger and acquisition activities.