The Effect of Corporate Governance on Post Reverse Merger Survival

In this paper, we examine how firm financial conditions and governance characteristics affect reverse mergers' survival. Using a sample of reverse mergers that took place in the United States during the 1997-2009 period, we find that firms with better corporate governance are more likely to survive after a reverse merger. In particular, CEO ownership, staggered board dummy, and venture dummy have a positive association with reverse merger survival. We also show a concave relation between the average board tenure and the probability of reverse merger survival. In contrast, most of the firm characteristic variables have an insignificant relationship with reverse merger survival. Our results suggest that the survivability of reverse mergers relies more on the presumed value-enhancing governance characteristics than on the financial conditions of the merging firms.