Acquisition experience over performance: Directorship prestige following M&As

Corporate governance research documents that outside directors are not penalised in the director labour market for engaging in value-destroying acquisitions (M&A) as they obtain additional directorships regardless of M&A performance. This result is puzzling as it suggests that the director labour market does not provide sufficient ex post settling-up incentives for outside directors to mitigate agency concerns in the M&A context. We further investigate this issue by examining the prestige of directorships received by independent directors after engaging in an M&A. Using US data, we find that acquiring firm directors are awarded more prestigious directorships, regardless of whether the acquisition resulted in value destruction or value creation. Overall, our findings reinforce the notion that, in the director labour market, acquisition experience holds more value than acquisition ability.