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The Costs of Entrenched Boards
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Alma Cohen
Tel Aviv University - Eitan Berglas School of Economics; Harvard Law School; National Bureau of Economic Research (NBER)
June 2004
NBER Working Paper No. w10587
Abstract:
This paper investigates empirically how the value of publicly traded firms is overall affected by arrangements protecting management from removal. A majority of U.S. public companies have staggered boards that substantially insulate the board from removal via a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically significant reduction in firm value (as measured by Tobin's Q). We also find evidence consistent with staggered boards' bringing about, and not merely reflecting, a lower firm value. Finally, the correlation with reduced firm value is stronger for staggered boards established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which can be amended by shareholders).
Number of Pages in PDF File: 36
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Date posted: July 7, 2004
Suggested CitationBebchuk, Lucian A. and Cohen, Alma, The Costs of Entrenched Boards (June 2004). NBER Working Paper No. w10587. Available at SSRN: http://ssrn.com/abstract=559237
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