Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors

60 Pages Posted: 17 Mar 2008 Last revised: 4 Aug 2008

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Mark A. Chen

Georgia State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

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

Agrawal, Anup and Chen, Mark, Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors (July 1, 2008). EFA 2008 Athens Meetings Paper, 3rd Annual Conference on Empirical Legal Studies Papers, Available at SSRN: https://ssrn.com/abstract=1101035 or http://dx.doi.org/10.2139/ssrn.1101035

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Mark Chen

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States

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