Staggered Boards and Firm Value, Revisited
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; IAST - Fondation Jean-Jacques Laffont - TSE
July 14, 2014
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
Date posted: December 7, 2013 ; Last revised: November 2, 2014
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