#07-12
Board Classification and Managerial Entrenchment: Evidence from the Market for Corporate Control
Thomas W. Bates, David A. Becher, and Michael L. Lemmon, April 2007
Abstract: Board classification is commonly believed to be an anti-takeover device that facilitates managerial
entrenchment. This paper considers the relation between board classification, takeover activity, and
transaction outcomes for a panel of firms between 1990 and 2002. Target board classification does
not change the likelihood that a firm, once targeted, is ultimately acquired. Shareholders of targets
with a classified board realize bid returns that are equivalent to those of targets with a single class of
directors; however, bidding shareholder returns are 2.7% lower when bids involve classified targets.
While board classification reduces the likelihood of receiving a takeover bid, the economic
magnitude of deterrence on the value of the firm is relatively small.
Keywords: G34
JEL classifications: merger, tender offer, acquisition, classified board, staggered board
