Noise Adopters in Corporate Governance

41 Pages Posted: 17 Jan 2014 Last revised: 12 Feb 2014

See all articles by Michal Barzuza

Michal Barzuza

University of Virginia School of Law; ECGI

Date Written: February 12, 2014


This Article argues that “noise adopters,” namely firms whose corporate governance is determined by non-substantive factors such as attorneys’ boilerplates, network externalities, and mere inertia, provide camouflage to insiders with a strong preference for entrenchment. Normally, a deliberate choice of entrenching governance terms could signal weak market discipline and high extraction of private benefits. Yet, since some firms stagger their boards or incorporate in their home state almost randomly, these choices send only a noisy signal, and in turn result in only a partial market discount of firm value. Entrenchment-seeking managers can achieve their desired level of entrenchment without paying a full price.

This analysis highlights informational limits on markets’ ability to perfectly price corporate governance terms. The value of governance terms varies across firms due to unobservable variations in market forces and potential signaling is obscured by practices of random adoption.

Noise adopters influence patterns of adoptions and help explain puzzling evidence regarding pricing and adoption of governance terms.

Keywords: Corporate Governance, Signaling, Noise, Staggered Board

JEL Classification: G3, G34, K22

Suggested Citation

Barzuza, Michal, Noise Adopters in Corporate Governance (February 12, 2014). Columbia Business Law Review, Vol. 3, No. 627, 2013, Virginia Law and Economics Research Paper No. 2014-05, Available at SSRN:

Michal Barzuza (Contact Author)

University of Virginia School of Law ( email )

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