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Impact of Classified Board on M&A Target Shareholder Value: Nurturing Innovation through Entrenchment

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  • Chaehyun Kim
  • Shinwoo Kang
  • Hyeongsop Shim

Abstract

We find that classified board in the M&A target firm is positively related to the target shareholder value, but only for firms with both intensive R&D investment and strong external governance. We also find that firms with classified board exhibit superior quality innovation when they have both intensive R&D investment and strong external governance. These findings are consistent with the view that classified board provides long‐term perspectives that promote productive but risky R&D investment, which is highly valued in M&A. Our findings are distinct from the view expressed in extant literature that classified board enhances target shareholder value because of stronger bargaining power.

Suggested Citation

  • Chaehyun Kim & Shinwoo Kang & Hyeongsop Shim, 2020. "Impact of Classified Board on M&A Target Shareholder Value: Nurturing Innovation through Entrenchment," International Review of Finance, International Review of Finance Ltd., vol. 20(1), pages 261-273, March.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:1:p:261-273
    DOI: 10.1111/irfi.12205
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