Board Classification And Managerial Entrenchment: Evidence From The Market For Corporate Control

Board classification is commonly believed to be an anti-takeover device that facilitates managerial entrenchment. This paper considers the relation between board classification, takeover activity, and transaction outcomes for a panel of firms between 1990 and 2002. Target board classification does not change the likelihood that a firm, once targeted, is ultimately acquired. Shareholders of targets with a classified board realize bid returns that are equivalent to those of targets with a single class of directors; however, bidding shareholder returns are 2.7% lower when bids involve classified targets. While board classification reduces the likelihood of receiving a takeover bid, the economic magnitude of deterrence on the value of the firm is relatively small.