Abstract

http://ssrn.com/abstract=2364165
 


 



Staggered Boards and Firm Value, Revisited


Martijn Cremers


University of Notre Dame

Lubomir P. Litov


University of Arizona - Department of Finance; 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

December 19, 2013


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.

Number of Pages in PDF File: 87

Keywords: Staggered Boards, Classified Boards, Firm Value, Incentive Problems, Entrenchment

JEL Classification: G34, K22

working papers series


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Date posted: December 7, 2013 ; Last revised: April 17, 2014

Suggested Citation

Cremers, Martijn and Litov, Lubomir P. and Sepe, Simone M., Staggered Boards and Firm Value, Revisited (December 19, 2013). 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 Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-3794 (Phone)
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
IAST - Fondation Jean-Jacques Laffont - TSE ( email )
21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France
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