Directors' network and the method of payment in mergers and acquisitions

This paper studies the impact of the network centrality of directors on the choice of payment method in mergers and acquisitions of firms in which they sit at the board. We assume that the centrality of directors reduces information asymmetry problems, facilitating information transmission between the firms involved in each deal. Using a large database on Board of Directors, we construct the directors' social network and analyze the impact of their centrality on the resolution of information uncertainty surrounding the deal. Our results indicate that when directors seating at the acquiror board have more connections, the percentage of cash used as payment increases. On the other hand, when the director of a target firm has more social connections, the percentage of stock used as payment increases.