Do Classified Boards Deter Takeovers? Evidence from Merger Waves

Kose John · Dalida Kadyrzhanova · Sang‐Ho Lee

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Corporate Finance and Governance Merger and Competition Analysis Corporate Governance and Law

Abstract

Abstract We exploit the arrival of industry-wide synergistic merger waves to identify whether classified boards deter takeover bids. In a stylized model, we show that when target classified boards are costly to bidders, their negative effect on takeover likelihood should be more pronounced during merger waves. Using a sample of takeover bids in the United States between 1990 and 2016, we find strong evidence supporting this prediction. The results are robust to accounting for the benefits of classified boards and controlling for other antitakeover provisions. Our findings suggest that classified boards effectively reduce a firm’s exposure to the takeover market.

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1986The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration 1988Management ownership and market valuation 2003Corporate Governance and Equity Prices 1997Industry costs of equity 1990Property Rights and the Nature of the Firm 2008What Matters in Corporate Governance?2001New Evidence and Perspectives on Mergers 1988Managerial control of voting rights

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