Abstract

http://ssrn.com/abstract=923408
 
 

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Board Classification and Managerial Entrenchment: Evidence from the Market for Corporate Control


David A. Becher


Drexel University - Department of Finance

Thomas W. Bates


Arizona State University - Department of Finance

Michael L. Lemmon


University of Utah - Department of Finance

September 2007

HKUST Business School Research Paper No. 07-05

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.

Number of Pages in PDF File: 45

Keywords: Classified Board, Staggered Board, Merger, Acquisition, Managerial Entrenchment

JEL Classification: G34

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Date posted: August 10, 2006 ; Last revised: October 22, 2007

Suggested Citation

Becher, David A. and Bates, Thomas W. and Lemmon, Michael L., Board Classification and Managerial Entrenchment: Evidence from the Market for Corporate Control (September 2007). HKUST Business School Research Paper No. 07-05. Available at SSRN: http://ssrn.com/abstract=923408 or http://dx.doi.org/10.2139/ssrn.923408

Contact Information

David A. Becher
Drexel University - Department of Finance ( email )
218 Academic Bldg.
Philadelphia, PA 19104
United States
215-895-2274 (Phone)
215-895-2295 (Fax)
Thomas W. Bates (Contact Author)
Arizona State University - Department of Finance ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
Michael L. Lemmon
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)
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