Type of Submission

Refereed Article


Previous literature suggests that classified boards of directors could impact firm performance in the context of firm-specific characteristics. In continuation of this discussion, this study investigates the effect of classified boards on firm value in the restaurant industry. Even though classified boards can reduce firm value because of higher monitoring costs, existing literature argues that classified boards are devoted to protecting investors and shareholders against opportunistic bids, which in turn increases their debt financing capabilities. Data from U.S. restaurant firms was analyzed by Compustat and RiskMetrics from 2007–2011 to investigate whether classified boards impact firm value in the restaurant industry. Our results indicate that classified boards of directors lower the value destruction of restaurant firms in terms of cost of debt. That is, cost of debt is lower in classified board firms, thereby reducing their negative impact on firm value. The implications and limitation of this research are also discussed.