Document Type
Article
Publication Date
9-2007
Source Publication
Journal of Corporate Finance
Abstract
This paper investigates the influence of managerial entrenchment on private placements by examining the firm's decision to appoint representatives of the private investors to the board without shareholder approval. By analyzing a sample of U.S. firms that appoint directors in combination with private offerings between 1995 and 2000, we find that firms with greater managerial entrenchment are more likely to bypass shareholder approval. Firms that bypass shareholders are less likely to appoint independent directors or to elect one of these directors as chairman. We also show that the market reacts more positively to the private offering announcement when the firm submits its board candidates for shareholder approval. Further, firms that bypass approval underperform compared to firms that obtain it. Overall our findings suggest that managers avoid shareholder approval to perpetuate entrenchment.
Comments
Originally published in Journal of Corporate Finance, Volume 13, No. 4 (September, 2007).
The article was originally published by Elsevier. For more information about accessing the definitive published version of this article, consult the publlisher's website at http://www.elsevier.com/wps/find/journaldescription.cws_home/524467/description#description