We examine the impact of boards of directors on shareholder returns arising from acquisition announcements in the context of varying CEO ownership levels. Agency theory emphasizes the benefits of incentives pertaining to top managers and directors, whereas resource dependence theory focuses on directors' resource provision, advice and counsel. Drawing on both these perspectives, the authors describe effective boards as those that are vigilant (via incentives to monitor) and rich in human capital (via relevant experience). Such boards are able not only to monitor in the decision control sense, but also to provide strategic benefits to a greater degree than typical outside directors.The authors contend and find that moderate levels of CEO ownership, combined with appropriate incentives and human capital, increase returns to shareholders of acquiring firms. Although shareholders benefit less when CEO ownership is negligible or substantial, their welfare is still enhanced to the degree that the board has appropriate incentives and human capital.
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