About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

32 Del. J. Corp. L. 113 (2007)
Classified Boards and Firm Value

handle is hein.journals/decor32 and id is 119 raw text is: CLASSIFIED BOARDS AND FIRM VALUE BY MICHAEL D. FRAKES* ABSTRACT Classified boards constitute one of the most potent takeover defenses for U.S. firms today. However, as with takeover defenses more generally, economic theory offers an ambiguous prediction as to the effect that classified boards have on bottom-line firm value. A resolution of this ambiguity will require sound and convincing empirical methodology. In an effort to address limitations in the existing empirical literature, this article approaches the relationship between corporate governance andfirm value while taking various measures to account for unobserved sources of heterogeneity across firms. Using the instrumental variables model developed by Hausman and Taylor,' I find evidence of a negative and statistically significant association between classified board status andfirm value. I confirm these findings using a variation of the difference-in- difference-in-difference model recently employed by Rauh.2 However, using quantile regressions, I find evidence suggesting that this negative association may be concentrated along the upper tail of the distribution of firm value. I. INTRODUCTION Over the last several decades, academics and practitioners have devoted significant attention to the benefits and costs of takeover defenses. The question remains, however, as to what effect such defenses ultimately have on the value of the firm. Given the variation in legal rules across jurisdictions and the discretion that firms possess in structuring their corporate governance profiles, firms do vary notably with respect to their ability to fend off unsolicited takeover bids. This variation offers the *Ph.D. candidate (economics), B.S., Massachusetts Institute of Technology. J.D., Harvard Law School. Member, Delaware Bar. I am grateful to Lucian Bebchuk for his helpful comments and for providing hand-coded data on charter-based classified board status. I am also grateful to the National Science Foundation and Harvard Law School's John M. Olin Center for Law, Economics, and Business for providing financial support. 'Jerry Hausman & William Taylor, Panel Data and Unobservable Individual Effects, 49 ECONOMETMCA 1377, 1378-79, 1383-89 (1981). 2Joshua D. Rauh, Own Company Stock in Defined Contribution Pension Plans: A Takeover Defense?, 81 J. FIN. ECON. 379, 399-401 (2006).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most