Open AccessClassified boards and firm value revisited
Author(s) -
Miroslava Stráska,
Gregory Waller
Publication year - 2011
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv8i3p6
Subject(s) - endogeneity , valuation (finance) , shareholder , enterprise value , business , accounting , agency cost , tobin's q , agency (philosophy) , value (mathematics) , principal–agent problem , on board , monetary economics , economics , corporate governance , econometrics , finance , statistics , philosophy , mathematics , epistemology , engineering , aerospace engineering
We reexamine the negative relation between firm value and board classification. We document that firms with characteristics indicating low power to bargain for favorable terms in a takeover, but also indicating high potential agency costs, are more likely to have a classified board in place. We also find that among these firms, those with classified boards have higher valuation, as measured by Tobin’s Q. This result is robust to various controls for endogeneity. Our evidence suggests that adopting a classified board is beneficial for certain firms and challenges the commonplace view that board classification is an antitakeover device that necessarily harms shareholders.