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Classified boards, the cost of debt, and firm performance

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  • Chen, Dong
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    Abstract

    This paper documents that classified boards substantially reduce the cost of debt. The evidence is not consistent with the argument that bondholders benefit from board classification because they are concerned about hostile takeovers. Instead, the results suggest that the lessened concern for takeovers associated with a classified board structure reduces managerial risk-taking, and increases managerial incentive for financial disclosure, with both effects inuring to bondholders’ benefit. Consistent with prior literature, classified boards on average are associated with a lower firm performance. However, under the circumstances that the agency conflict between shareholders and bondholders is severe, the performance effect of classified boards appears benign.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 12 ()
    Pages: 3346-3365

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3346-3365

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Classified board; Agency cost of debt; Firm performance; Antitakeover; Risk-taking; Disclosure;

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    Cited by:
    1. Andrade, Sandro C. & Bernile, Gennaro & Hood, Frederick M., 2014. "SOX, corporate transparency, and the cost of debt," Journal of Banking & Finance, Elsevier, Elsevier, vol. 38(C), pages 145-165.

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