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Board Declassification Activism: Why Run Away from the Evidence?

13 Pages Posted: 26 Jun 2017  

Martijn Cremers

University of Notre Dame

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; IAST - Fondation Jean-Jacques Laffont - TSE ; University of Toulouse 1 - Industrial Economic Institute (IDEI)

Date Written: June 23, 2017

Abstract

In a recently released paper, “Board Declassification Activism: The Financial Value of the Shareholder Rights Projects,” we investigated the effects on firm value of board declassifications promoted by the Shareholder Rights Project (SRP), a clinical program held at Harvard Law School for three academic years (2011-2014). Consistent with the results we obtained in our prior published work on staggered boards, we find a negative effect of SRP declassifications on firm value, both in absolute terms and relative to declassifications occurring at firms that were not targeted by the SRP over the same period. Economically, the negative effect of SRP declassifications corresponds to an average decline in financial value in the range of $0.96 - $1.6 billion per declassifying SRP target or, aggregated across the 93 SRP-declassifications included in our sample, an overall loss in the range of $90 - $149 billion.

In a response note, Lucian Bebchuk and Alma Cohen “contest” our results, arguing that they do not provide a basis for opposing board declassification, when appropriately interpreted. This reply responds to the Bebchuk-Cohen critique. We show that not only their critique is unwarranted, but also fails to engage with our main finding that the plausibly exogenous shock caused by the SRP’s declassification activism was followed by substantial declines in firm value.

Keywords: staggered board, declassification, firm value, shareholder activism, shareholder proposals, legal clinic

Suggested Citation

Cremers, Martijn and Sepe, Simone M., Board Declassification Activism: Why Run Away from the Evidence? (June 23, 2017). Available at SSRN: https://ssrn.com/abstract=2991854

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Simone Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

IAST - Fondation Jean-Jacques Laffont - TSE ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

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