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Alternative Title
Abstract
Classified boards actually benefit firms that have low monitoring costs and greater needs for advisory services. Previous literature has emphasized the entrenchment effect of classified boards. However, we find that this adverse impact of classified boards can be offset or even superseded by the potential benefits of board classification for firms who hope to benefit from the advisory services of their independent directors. We show that firms with greater advising needs appoint more outside directors with diverse attributes and expertise, qualifications that enhance the ability to provide useful advice to managers. Furthermore, in such firms, board classification is associated with higher performance sensitivity of forced CEO turnover and better acquisition performance. Conversely, in firms with high monitoring costs, board classification hurts managerial equity-based incentives and risk-taking incentives. These findings suggest how and through which channels classified boards engender the differential effects on firm value. © 2013 Elsevier B.V..
Keywords
Board composition, Classified boards, Corporate governance, G32, G34, Independent directors, K22, Staggered boards
Source Title
Journal of Banking and Finance
Publisher
Series/Report No.
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Rights
Date
2013-11
DOI
10.1016/j.jbankfin.2013.07.029
Type
Article