Board classification and managerial entrenchment: Evidence from the market for corporate control

Thomas Bates, David A. Becher, Michael L. Lemmon

Research output: Contribution to journalArticle

85 Citations (Scopus)

Abstract

This paper considers the relation between board classification, takeover activity, and transaction outcomes for a panel of firms between 1990 and 2002. Target board classification does not change the likelihood that a firm, once targeted, is ultimately acquired. Moreover, shareholders of targets with a classified board realize bid returns that are equivalent to those of targets with a single class of directors, but receive a higher proportion of total bid surplus. Board classification does reduce the likelihood of receiving a takeover bid, however, the economic effect of bid deterrence on the value of the firm is quite small. Overall, the evidence is inconsistent with the conventional wisdom that board classification is an anti-takeover device that facilitates managerial entrenchment.

Original languageEnglish (US)
Pages (from-to)656-677
Number of pages22
JournalJournal of Financial Economics
Volume87
Issue number3
DOIs
StatePublished - Mar 2008

Fingerprint

Market for corporate control
Managerial entrenchment
Bid
Wisdom
Surplus
Deterrence
Takeover bids
Economic effect
Shareholders
Proportion

Keywords

  • Acquisition
  • Antitakeover provisions
  • Boards
  • Classified board
  • Corporate governance
  • Directors
  • Merger
  • Staggered board
  • Takeovers

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Board classification and managerial entrenchment : Evidence from the market for corporate control. / Bates, Thomas; Becher, David A.; Lemmon, Michael L.

In: Journal of Financial Economics, Vol. 87, No. 3, 03.2008, p. 656-677.

Research output: Contribution to journalArticle

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