Classified Boards, the Cost of Debt, and Firm Performance

61 Pages Posted: 23 Dec 2010 Last revised: 11 Aug 2014

Date Written: August 10, 2014


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.

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

JEL Classification: G30, G34

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: or

Dong Chen (Contact Author)

University of Baltimore ( email )

1420 N. Charles Street
Baltimore, MD 21201
United States

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