Value Creation of Independent Directors with STEM PhD: Evidence from Target Shareholder Gains

Abstract

This paper examines whether independent outside directors who hold a PhD in science, technology, engineering, and mathematics (i.e., STEM directors) enhance shareholder wealth in mergers and acquisitions. Using 772 mergers completed in U.S. between 2005 and 2014, we find that the market responds more favorably to M&A announcements when target firms have STEM directors, but not when their independent directors hold PhDs in other disciplines (e.g., business or law). In subsample tests, we find that the short-term announcement day premium from STEM directors is particularly pronounced for firms with higher R&D intensity, firms in high-tech industries, and firms located in high-tech cities. Further, we find that the short-term premium exists only when STEM directors’ academic discipline is in line with the target firm’s primary operation. Last, we find that target firms are more likely to be acquired by bidders in the same industry than in other industries and by public bidders than private bidders if target firms have STEM directors. Overall, our findings suggest that independent directors with STEM expertise enhance shareholder wealth owing to their technical advisory role in corporate innovation.