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Undoing the powerful anti-takeover force of staggered boards

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  • Guo, Re-Jin
  • Kruse, Timothy A.
  • Nohel, Tom

Abstract

We examine cases where managers announce an intention to de-stagger their boards via proxy proposals or board action. The literature has established the staggered board as the most consequential of all takeover defenses and one that destroys wealth. Thus, dismantling staggered boards benefits shareholders. We study the wealth effects and motives behind this change in governance within a conditional event study. We find that de-staggering the board creates wealth and that shareholder activism is an important catalyst for pushing through this change. Moreover, in the period preceding Sarbanes-Oxley, investor reaction indicates a perception that de-staggering firms are more likely to be takeover targets.

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  • Guo, Re-Jin & Kruse, Timothy A. & Nohel, Tom, 2008. "Undoing the powerful anti-takeover force of staggered boards," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 274-288, June.
    • Handle: RePEc:eee:corfin:v:14:y:2008:i:3:p:274-288
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    Cited by:

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    2. Fabel, Oliver & Kolmar, Martin, 2012. "Do parachutes discipline managers? An analysis of takeover battles," International Review of Law and Economics, Elsevier, vol. 32(2), pages 224-232.
    3. Lucian A. Bebchuk & Alma Cohen & Charles C.Y. Wang, 2011. "Staggered Boards and the Wealth of Shareholders: Evidence from Two Natural Experiments," NBER Working Papers 17127, National Bureau of Economic Research, Inc.
    4. Moore, Jared A. & Suh, SangHyun & Werner, Edward M., 2017. "Dual entrenchment and tax management: Classified boards and family firms," Journal of Business Research, Elsevier, vol. 79(C), pages 161-172.
    5. Thomas Smythe & Chris McNeil & Philip English, 2015. "When does CalPERS’ activism add value?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 641-660, October.
    6. Cremers, K.J. Martijn & Litov, Lubomir P. & Sepe, Simone M., 2017. "Staggered boards and long-term firm value, revisited," Journal of Financial Economics, Elsevier, vol. 126(2), pages 422-444.
    7. Appel, Ian R. & Gormley, Todd A. & Keim, Donald B., 2016. "Passive investors, not passive owners," Journal of Financial Economics, Elsevier, vol. 121(1), pages 111-141.
    8. Oehler, Andreas & Schmitz, Jonas Tobias, 2021. "Does intensified communication of hedge funds with letters affect abnormal returns?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 127-142.
    9. Field, Laura Casares & Lowry, Michelle, 2022. "Bucking the trend: Why do IPOs choose controversial governance structures and why do investors let them?," Journal of Financial Economics, Elsevier, vol. 146(1), pages 27-54.
    10. Otsubo, Minoru, 2017. "Why do firms underwrite private placement shares of other firms? Case of Japanese firms," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 75-92.
    11. Chen, Dong, 2012. "Classified boards, the cost of debt, and firm performance," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3346-3365.
    12. Otsubo, Minoru, 2021. "How do partial acquisitions affect the wealth of acquiring firms? The case of Japanese firms," Research in International Business and Finance, Elsevier, vol. 58(C).
    13. Vincent C. Ma & John S. Liu, 2016. "Exploring the research fronts and main paths of literature: a case study of shareholder activism research," Scientometrics, Springer;Akadémiai Kiadó, vol. 109(1), pages 33-52, October.
    14. Oğuzhan Karakas & Mahdi Mohseni, 2021. "Staggered Boards and the Value of Voting Rights [One share-one vote: The empirical evidence]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(3), pages 513-550.
    15. Ian R. Appel & Todd A. Gormley & Donald B. Keim, 2016. "Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism," NBER Working Papers 22707, National Bureau of Economic Research, Inc.
    16. Rastad, Mahdi & Dobson, John, 2022. "Gender diversity on corporate boards: Evaluating the effectiveness of shareholder activism," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 446-461.
    17. Ertimur, Yonca & Ferri, Fabrizio & Stubben, Stephen R., 2010. "Board of directors' responsiveness to shareholders: Evidence from shareholder proposals," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 53-72, February.
    18. Ahn, Seoungpil & Shrestha, Keshab, 2013. "The differential effects of classified boards on firm value," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 3993-4013.
    19. Brian L. Connelly & Wei Shi & Jinyong Zyung, 2017. "Managerial response to constitutional constraints on shareholder power," Strategic Management Journal, Wiley Blackwell, vol. 38(7), pages 1499-1517, July.
    20. Cohen, Alma & Wang, Charles C.Y., 2013. "How do staggered boards affect shareholder value? Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 110(3), pages 627-641.
    21. Weili Ge & Lloyd Tanlu & Jenny Li Zhang, 2016. "What are the consequences of board destaggering?," Review of Accounting Studies, Springer, vol. 21(3), pages 808-858, September.
    22. Caspar Rose, 2012. "The new European shareholder rights directive: removing barriers and creating opportunities for more shareholder activism and democracy," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 269-284, May.

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