Bucking the Trend: Why do IPOs Choose Controversial Governance Structures and Why Do Investors Let Them

55 Pages Posted: 5 Jan 2017 Last revised: 16 Dec 2017

See all articles by Laura Casares Field

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Michelle Lowry

Drexel University

Date Written: August 25, 2017

Abstract

While the percentage of S&P1500 firms with classified boards has decreased from nearly 60% to less than 40% since 1990, trends among IPO firms have gone strongly in the opposite direction. The percent of firms going public with a classified board has increased from 40% in 1990 to nearly 80% today. Results provide strong support for differences in the value of classified boards across firms contributing toward these trends, with market forces pushing each group in the value-increasing direction. We find little evidence that the increased tendency of IPO firms to adopt classified boards is driven by agency issues. Rather, results suggest that classified boards potentially protect newly public firms from the influence of shareholders that may not appreciate the unique aspects of these firms and may push for change that is not in the firm’s best interests.

Keywords: IPO, Classified Board, Governance

Suggested Citation

Field, Laura Casares and Lowry, Michelle B., Bucking the Trend: Why do IPOs Choose Controversial Governance Structures and Why Do Investors Let Them (August 25, 2017). Available at SSRN: https://ssrn.com/abstract=2889333 or http://dx.doi.org/10.2139/ssrn.2889333

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Michelle B. Lowry (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

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