Staggered Boards and Firm Value, Revisited

Abstract

This paper revisits the association between firm value (as proxied by Tobin's Q) and whether the firm has a staggered board. As is well known, in the cross-section firms with a staggered board tend to have a lower value. Using a comprehensive sample for 1978-2011, we show an opposite result in the time series: firms that adopt a staggered board increase in firm value, while de-staggering is associated with a decrease in firm value. We further show that the decision to adopt a staggered board seems endogenous, and related to an ex ante lower firm value, which helps reconciling the existing cross-sectional results to our novel time series results. To explain our new results, we explore potential incentive problems in the shareholder-manager relationship. Short-term oriented shareholders may generate myopic incentives for the firm to underinvest in risky long-term projects. In this case, a staggered board may helpfully insulate the board from opportunistic shareholder pressure. Consistent with this, we find that the adoption of a staggered board has a stronger positive association with firm value for firms where such incentive problems are likely more severe: firms with more R&D, more intangible assets, more innovative and larger and thus likely more complex firms.

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

“…38 For example, Dittmar and Mahrt-Smith (2007) and John, Litov, and Yeung (2008) find stronger results with the G-index than the E-index (indicating that provisions other than classified boards matter), and Hwang andKim (2009), Harford, Humphery-Jenner, andPowell (2012), and Johnson, Karpoff, and Yi (2015) find stronger results using broad indices of takeover defenses compared to using only classified boards. Cremers, Litov, and Sepe (2017) also find that the takeover defenserelated results in Cuñat, Gine, and Guadalupe (2012) are driven by takeover defenses other than classified boards, also indicating that a variety of defenses offer incremental takeover protection. provides good test identification without considering firms' coverage by firstgeneration laws, other second-generation laws, firm-level defenses, and the endogenous process by which the law came about.…”

The Efficacy of Shareholder Voting in Staggered and Non-Staggered Boards: The Case of Audit Committee Elections

“…The two leading proxy advisors, ISS and Glass Lewis (GL), also support proposals to repeal staggered boards and oppose proposals to stagger boards (ISS 2013; Glass, Lewis & Co. 2013). 11 In contrast to studies that documented lower firm value of staggered boards, recent studies find that staggered boards are not necessarily associated with lower firm value and weaker performance (Ahn and Shrestha 2013;Cremers, Litov, and Sepe 2014;Ge, Tanlu, and Zhang 2014). 12 Cai et al (2009) include an indicator variable for boards that are either staggered or have a poison pill.…”

Do non-staggered board elections matter to earnings quality and the value relevance of earnings and book value?

“…On the one hand, it has been argued that non-staggered board of directors elections may lead to an inconstancy of corporate governance, in that boards facing elections may engage in behaviors that do not foster the firm’s long-term prospects (Zhao and Chen, 2008). Cremers et al (2014) note that staggered elections may reduce the directors’ accountability and result in shirking, empire building and extracting private benefits due to the directors’ status as corporate insiders. In addition, Cremers et al (2014) note that a board insulated from shareholder pressure because of the staggered elections may choose to block takeover attempts, as only one-third of the board would be up for election in a given year, and therefore it would take two years for a party wishing to take over the target firm to achieve control over the board of directors.…”