Heterogeneous impacts of staggered boards by ownership concentration

Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs

“…Specifically, acquiring firms with staggered boards suffer significantly higher valuation loss (0.52%) than those without staggered boards. Our results, in contrast, are closer to Rose (2009) who demonstrates that staggered boards have an adverse effect on value only for firms with significant outside ownership concentration which the author uses as a proxy for high probability of a hostile takeover attempt. For these firms, because directors that are aligned with management cannot be immediately removed through annual reelection, entrenched managers can use a staggered board to prevent a hostile bid from being accepted by shareholders.…”

“…A classified board may also allow more time to review a takeover bid and solicit competing offers. These potential benefits aside, Rose (2009) asserts that the negative relation between staggered board and firm value documented in extant literature must be interpreted from the perspective of a firm's vulnerability to hostile takeovers. Rose contends that managerial entrenchment and staggered boards are more harmful for firms that are takeover targets.…”

“…This implies that, in general, REIT managers face no serious takeover threat. Following Rose (2009), we argue that if the adverse effect of staggered boards is attributable mainly to managerial entrenchment thwarting hostile takeover attempts, staggered boards (STAGBOARD) should have no discernibly adverse impact on the market value of REIT acquirers. Indeed, it may be argued that a staggered board will help attract better directors who feel more secure in a classified board.…”

How Entrenchment, Incentives and Governance Influence REIT Capital Structure

“…While a staggered board has often been viewed as an anti-takeover measure (Masulis et al 2007) that could insulate management from the market for corporate control and the threat of takeover, recent research suggests that this view may be oversimplified. A contrasting view has been espoused by Wilcox (2002), Rose (2009), andCampbell et al (2009). These authors argue that the longer board terms associated with staggered boards strengthen board members in their dealings with the CEO since they do not need to stand for re-election each year.…”

“…A classified board also allows more time to review a takeover bid and solicit competing offers. These potential benefits aside, Rose (2009) asserts that the negative relation between staggered board and firm value must be interpreted from the perspective of a firm's vulnerability to hostile takeovers. Rose contends that staggered boards are more harmful for firms that are takeover targets.…”