Do board declassifications improve acquisition performance? Evidence from the declassification wave

Prior research documents that managers of firms with a classified board pursue acquisitions that create less shareholder value when compared to managers of firms without a classified board (Masulis, Wang, and Xie, 2007). This research has been interpreted as consistent with the view that classified boards allow for non-value-maximizing behavior and has been cited as supporting evidence for those demanding large-scale board declassifications. In this study, we examine whether declassifying corporate boards during 2004–2018, a period of high declassification activity, affects the profitability of firm acquisitions. We find that, all else equal, announcement-period abnormal returns are significantly lower for large acquirers that declassified their boards in this time period compared to large acquirers with a classified board. This finding suggests that, contrary to expectations, board declassifications did not bring about better acquisition performance, on average. By extension, this finding also suggests that the one-size-fits-all push for board declassifications may not have achieved its intended outcomes.