Who Stays and Who Goes? A Theoretical Model to Explain Director Turnover in Acquired Firms

Mergers and acquisitions lead to important changes in corporate governance including the constitution of a new board of directors and top management team (TMT). While there exists substantive research on TMT behavior of acquired firms, we know relatively little about the factors influencing director turnover in acquired firms. This paper focuses on the determinants and likelihood of director turnover following an acquisition. We identify several functions that directors might undertake within a firm and discuss how the ineffective fulfillment of those functions prior to and after the acquisition might lead to director turnover. We provide a broad conceptualization of director functions, and build our theoretical model drawing on these functions within agency theory, resource-based view and social capital perspective. This paper will help acquiring firms to make decisions about acquired directors and sheds additional light on existing studies of TMT turnover post-acquisition by showing that significantly different factors shape directors' turnover.