The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence and Policy

Lucian Arye Bebchuk, John C. Coates IV, Guhan Subramanian

NBER Working Paper No. 8974
Issued in May 2002
NBER Program(s):Corporate Finance, Law and Economics

Staggered boards, which a majority of public companies now have, provide a powerful antitakeover defense, stronger than is commonly recognized. They provide antitakeover protection both by (i) forcing any hostile bidder, no matter when it emerges, to wait at least one year to gain control of the board and (ii) requiring such a bidder to win two elections far apart in time rather than a one-time referendum on its offer. Using a new data set of hostile bids in the five-year period 1996-2000, we find that not a single hostile bid won a ballot box victory against an 'effective' staggered board (ESB). We also find that an ESB nearly doubled the odds of remaining independent for an average target in our data set, from 34% to 61%, halved the odds that a first bidder would be successful, from 34% to 14%, and reduced the odds of a sale to a white knight, from 32% to 25%. Furthermore, we find that the shareholders of targets that remained independent were made worse off compared with accepting the bid and that ESBs did not provide sufficient countervailing benefits in terms of increased premiums to offset the costs of remaining independent. Overall, we estimate that, in the period studied, ESBs reduced the returns of shareholders of hostile bid targets on the order of 8-10%. Finally, we show that most staggered boards were adopted before the developments in takeover doctrine that made ESBs such a potent defense.

download in pdf format
   (376 K)

email paper

A non-technical summary of this paper is available in the October 2002 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8974

Published: Bebchuk, Lucian, John Coates, Guhan Subramanian. "The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants." Stanford Law Review 55 (2002): 885-917.

Users who downloaded this paper also downloaded* these:
Ruback An Overview of Takeover Defenses
Bebchuk, Cohen, and Wang w17127 Staggered Boards and the Wealth of Shareholders: Evidence from Two Natural Experiments
Bebchuk w10190 Why Firms Adopt Antitakeover Arrangements
Bebchuk w9078 The Case Against Board Veto in Corporate Takeovers
Gompers, Ishii, and Metrick w8449 Corporate Governance and Equity Prices
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us