NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Costs of Entrenched Boards

Lucian Bebchuk, Alma Cohen

NBER Working Paper No. 10587
Issued in June 2004
NBER Program(s):   CF   LE

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).

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Document Object Identifier (DOI): 10.3386/w10587

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

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