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

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.
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).

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