Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors

Quarterly Journal of Finance, Forthcoming

64 Pages Posted: 22 Mar 2009 Last revised: 19 Mar 2017

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Mark A. Chen

Georgia State University - Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 6, 2017

Abstract

We investigate the internal workings of U.S. corporate governance with a hand-collected dataset of director resignations that are related to power struggles within the board. About two-thirds of the conflicts arise because of how board members interact in carrying out their duties, while most of the remaining cases involve disagreements between directors and top management over corporate strategy or financial policy. These kinds of disputes are more likely to occur at companies where the CEO is the founder or is relatively new to the position. Tensions also increase when there are independent directors with large blockholdings. Stock prices decline sharply on average after a director turnover amid dispute, which may indicate that investors expect the firm to continue to have poor operating performance. The aftermath of such a resignation often includes shareholder class-action lawsuits, proxy contests, asset divestitures, and stock market delistings. Our results highlight the importance of a well-functioning board for reducing agency problems and maximizing shareholder value.

Keywords: Boards of directors, Boardroom disputes, Board disputes, Director disputes, Director departures

JEL Classification: G34, D23, D74, K22

Suggested Citation

Agrawal, Anup and Chen, Mark A., Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors (February 6, 2017). Quarterly Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1362143 or http://dx.doi.org/10.2139/ssrn.1362143

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 A. Chen

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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