Abstract

http://ssrn.com/abstract=2364165
 
 

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Staggered Boards and Firm Value, Revisited


Martijn Cremers


University of Notre Dame

Lubomir P. Litov


University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Simone M. Sepe


University of Arizona - James E. Rogers College of Law; Northwestern University - School of Law; IAST - Fondation Jean-Jacques Laffont - TSE ; University of Toulouse 1 - Industrial Economic Institute (IDEI)

July 14, 2014


Abstract:     
This paper revisits the association between firm value (as proxied by Tobin’s Q) and whether the firm has a staggered board. Confirming prior studies, we find that in the cross-section firms with a staggered board tend to have a lower value. However, we obtain the opposite result in the time series: firms adopting a staggered board increase in value, while de-staggering is associated with a decrease in 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 whether staggered boards may promote long-term value creation by serving as a credible longer-term commitment device by the shareholders. Consistent with this, we find that adopting a staggered board has a stronger positive association with firm value for firms where such longer-term commitment seems more relevant, i.e., firms with more R&D, more intangible assets, more innovative and larger and thus likely more complex firms.

Number of Pages in PDF File: 79

Keywords: Staggered Boards, Classified Boards, Firm Value, Long-term Commitment, Entrenchment

JEL Classification: G34, K22


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Date posted: December 7, 2013 ; Last revised: November 2, 2014

Suggested Citation

Cremers, Martijn and Litov, Lubomir P. and Sepe, Simone M., Staggered Boards and Firm Value, Revisited (July 14, 2014). Available at SSRN: http://ssrn.com/abstract=2364165 or http://dx.doi.org/10.2139/ssrn.2364165

Contact Information

K. J. Martijn Cremers (Contact Author)
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Lubomir P. Litov
University of Oklahoma - Michael F. Price College of Business ( email )
307 West Brooks
Norman, OK 73019-4004
United States
University of Pennsylvania - Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Simone M. Sepe
University of Arizona - James E. Rogers College of Law ( email )
P.O. Box 210176
Tucson, AZ 85721-0176
United States
Northwestern University - School of Law ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
IAST - Fondation Jean-Jacques Laffont - TSE ( email )
21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France
University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )
Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
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