Acquirers’ top legal executives and merger and acquisition outcomes

Abstract

A firm’s top in-house legal executive acts as a trusted advisor to top management and the board of directors, and the top legal executive role has become more prominent in recent years due to heightened regulatory focus on business compliance. In this study, we develop a measure of the top legal executive’s influence in the acquiring firm and examine whether top legal executive influence is associated with merger and acquisition (M&A) outcomes. We find that top legal executive influence is associated with shorter public process length (merger announcement to deal resolution), higher likelihood of deal completion, and lower likelihood of acquirer-protective contract terms. These associations exist after controlling for potential endogeneity of top legal executive influence. Cross-sectional tests also provide some evidence that the top legal executive emphasizes a monitoring role in M&A deals involving high uncertainty and when independence concerns should be more prevalent.