Agency risks and long-term performance of Australian publicly listed mergers and acquisitions

This paper investigates the extent to which agency risks and the acquirers mechanisms used to avoid these risks (i.e. board of directors, ownership structure and financial leverage) influenced the post-acquisition performance of Australian publicly listed mergers and acquisitions during the period from 1992 to 2001 in the presence of mechanisms that encourage agency behaviour (i.e. free cash flows). The results suggest that the acquirers board size had an inverted U-shaped non-linear relationship with post-acquisition accounting returns, while blockholders ownership had a negative relationship with post-acquisition market returns. Overall, the results suggest that board size is the most important corporate governance mechanism in explaining the variance in post-acquisition accounting performance.