Abstract

http://ssrn.com/abstract=1729472
 
 

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Classified Boards, the Cost of Debt, and Firm Performance


Dong Chen


University of Baltimore

August 10, 2014

Journal of Banking and Finance, 2012, vol. 36, issue 12, p3346-3365

Abstract:     
This paper documents that classified boards substantially reduce the cost of debt. The evidence is not consistent with the argument that bondholders benefit from board classification because they are concerned about hostile takeovers. Instead, the results suggest that the lessened concern for takeovers associated with a classified board structure reduces managerial risk-taking, and increases managerial incentive for financial disclosure, with both effects inuring to bondholders’ benefit. Consistent with prior literature, classified boards on average are associated with a lower firm performance. However, under the circumstances that the agency conflict between shareholders and bondholders is severe, the performance effect of classified boards appears benign.

Number of Pages in PDF File: 61

Keywords: classified board, staggered boards, corporate governance, agency cost of debt, firm performance, antitakeover, risk-taking, disclosure, transparency

JEL Classification: G30, G34

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Date posted: December 23, 2010 ; Last revised: August 11, 2014

Suggested Citation

Chen, Dong, Classified Boards, the Cost of Debt, and Firm Performance (August 10, 2014). Journal of Banking and Finance, 2012, vol. 36, issue 12, p3346-3365. Available at SSRN: http://ssrn.com/abstract=1729472 or http://dx.doi.org/10.2139/ssrn.1729472

Contact Information

Dong Chen (Contact Author)
University of Baltimore ( email )
1420 N. Charles Street
Baltimore, MD 21201
United States
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