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Classified Boards and Managerial Entrenchment: Evidence from Seasoned Equity Offerings

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Author Info

  • Ranadeb Chaudhuri

    (Department of Accounting and Finance, Oakland University, U.S.A.)

  • Hoontaek Seo

    (Commerce Department, Niagara University, U.S.A.)

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    Abstract

    We investigate the effect of classified boards on the market reaction to seasoned equity offering (SEO) announcements and the operating performance following SEOs. We find that firms with classified boards on average earn lower SEO announcement returns and have worse abnormal operating performance following SEOs relative to firms with unitary boards. Our results support the view that classified boards entrench managers and are ineffective in preventing them from misusing funds raised in SEOs.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 9 (2010)
    Issue (Month): 1 (April)
    Pages: 29-43

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    Handle: RePEc:ijb:journl:v:9:y:2010:i:1:p:29-43

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    Postal: 100 Wenhwa Road, Seatwen, Taichung
    Web page: http://www.ijbe.org/
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    Related research

    Keywords: classified boards; secondary equity offering; managerial entrenchment;

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    References

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    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Thomas W. Bates, 2005. "Asset Sales, Investment Opportunities, and the Use of Proceeds," Journal of Finance, American Finance Association, vol. 60(1), pages 105-135, 02.
    4. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-50, December.
    5. Smith, James F, 1977. "The Equal Credit Opportunity Act of 1974: A Cost/Benefit Analysis," Journal of Finance, American Finance Association, vol. 32(2), pages 609-22, May.
    6. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
    7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
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