Impact of Classified Board on M&A Target Shareholder Value: Nurturing Innovation through Entrenchment

Chaehyun Kim, Shinwoo Kang and Hyeongsop Shim

International Review of Finance, 2020, vol. 20, issue 1, 261-273

Abstract: We find that classified board in the M&A target firm is positively related to the target shareholder value, but only for firms with both intensive R&D investment and strong external governance. We also find that firms with classified board exhibit superior quality innovation when they have both intensive R&D investment and strong external governance. These findings are consistent with the view that classified board provides long‐term perspectives that promote productive but risky R&D investment, which is highly valued in M&A. Our findings are distinct from the view expressed in extant literature that classified board enhances target shareholder value because of stronger bargaining power.

Date: 2020
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