The Costs of Entrenched Boards

Lucian Bebchuk () and Alma Cohen

No 10587, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates empirically how the value of publicly traded firms is overall affected by arrangements protecting management from removal. A majority of U.S. public companies have staggered boards that substantially insulate the board from removal via a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically significant reduction in firm value (as measured by Tobin's Q). We also find evidence consistent with staggered boards' bringing about, and not merely reflecting, a lower firm value. Finally, the correlation with reduced firm value is stronger for staggered boards established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which can be amended by shareholders).

JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2004-06
Note: CF LE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Bebchuk, Lucian A. and Alma Cohen. "The Costs Of Entrenched Boards," Journal of Financial Economics, 2005, v78(2,Nov), 409-433.

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Journal Article: The costs of entrenched boards (2005)
Working Paper: The Costs of Entrenched Boards
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