Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors
60 Pages Posted: 17 Mar 2008 Last revised: 4 Aug 2008
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Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors
Date Written: July 1, 2008
Abstract
This paper examines the nature, incidence, and consequences of boardroom disputes. Using a novel, hand-collected dataset of internal disputes in publicly traded U.S. companies over 1995-2006 that come to light upon the occurrence of director resignations, we find that such conflicts typically appear to be the result of power struggles between management and directors. About two-thirds of the conflicts pertain to corporate governance issues; most of the remaining cases involve disagreements over corporate strategy or financing decisions. Disputes are more likely to occur in firms where CEOs are more powerful relative to board members, independent blockholdings are higher, or where the balance of power between the CEO and directors has not yet clearly emerged. For firms that experience a dispute, directors with shorter tenures and directors who are more powerful within the firm are more likely to be involved. Firms experience large and significant stock price declines upon the revelation of these conflicts. Finally, dispute firms exhibit poor operating and stock price performance in the years surrounding a dispute episode, and they experience a significantly greater likelihood of stock market delisting during the post-dispute year. These results are robust to alternative specifications. Our findings thus provide a rare glimpse into the internal functioning of corporate boards and contribute to our understanding of boardroom conflict.
Keywords: Boards of directors, Corporate boards, Boardroom disputes, Board disputes, Director disputes, Director departures
JEL Classification: G34, D23, D74, K22
Suggested Citation: Suggested Citation
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