The effect of entrenched boards on corporate risk-taking: Testing the quiet life hypothesis

P. Chintrakarn, N. Jiraporn, Pornsit Jiraporn

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

The quiet life hypothesis posits that entrenched managers are well insulated from removal and thus prefer to enjoy a quiet life, i.e. they tend to be less ambitious, avoid difficult decisions and engage in less risk-taking (Bertrand and Mullainathan, 2003). We utilize the staggered board (or classified board) to test this hypothesis. The staggered board is a powerful takeover defence that enables inefficient managers to evade the discipline of the takeover market, thereby exacerbating managerial entrenchment (Bebchuk and Cohen, 2005). We find that managers entrenched by the staggered board adopt significantly less risky strategies, consistent with the quiet life hypothesis. In particular, the presence of a staggered board reduces the volatility of stock returns by 4.46%. We also show that our conclusion is unlikely affected by the presence of endogeneity.

Original languageEnglish (US)
Pages (from-to)1067-1070
Number of pages4
JournalApplied Economics Letters
Volume20
Issue number11
DOIs
StatePublished - May 31 2013

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Staggered boards
Risk taking
Testing
Managers
Takeover defenses
Endogeneity
Stock returns
Hypothesis test
Managerial entrenchment

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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The effect of entrenched boards on corporate risk-taking : Testing the quiet life hypothesis. / Chintrakarn, P.; Jiraporn, N.; Jiraporn, Pornsit.

In: Applied Economics Letters, Vol. 20, No. 11, 31.05.2013, p. 1067-1070.

Research output: Contribution to journalArticle

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