Director Job Insecurity and Mergers and Acquisitions: Evidence from Majority Voting Legislation

In this study, we investigate whether and how director job insecurity affects firms’ mergers and acquisitions (M&As). Using the staggered adoption of majority voting legislation as an exogenous shock that heightens job insecurity among directors, we find that director job insecurity is negatively related to firm acquisitiveness. Conditional on engaging in M&As, we show that directors experiencing increased job insecurity tend to acquire private, within-industry targets, as well as those likely to generate short-term positive announcement returns. They also tend to use non-stock payment methods, offer lower bid premiums, and expedite deal completion. We further find that reducing CEO equity compensation is an important channel through which director job insecurity influences corporate acquisitions. Overall, our findings highlight that increased job insecurity triggers conservative and myopic behaviors among directors, resulting in decreased investment in high-risk, long-term projects.