What Are the Consequences of Board Destaggering?

61 Pages Posted: 20 Aug 2013 Last revised: 30 Mar 2016

See all articles by Weili Ge

Weili Ge

University of Washington - Michael G. Foster School of Business

Lloyd Tanlu

Washington and Lee University; University of Washington - Department of Accounting; Northeastern University

Jenny Li Zhang

University of British Columbia - Sauder School of Business

Date Written: March 29, 2016

Abstract

In this paper, we examine the consequences of the decision to destagger the election of directors using a sample of firms that switched from a staggered to a destaggered board structure from 2002 through 2010. We find that the likelihood of destaggering increases in shareholder activism, firm size, and poor prior accounting performance. Furthermore, we find that firms that destagger tend to have larger boards and a lower entrenchment index prior to destaggering. We then use our determinants model to identify a sample of control firms that maintained a staggered board structure. Employing a difference-in-differences research design, we find that, relative to our control firms, firms that destaggered experience declines in Tobin’s q and accounting performance, measured by ROA. In addition, the negative effect on Tobin’s q is most pronounced in firms with greater advisory needs, consistent with the notion that destaggering results in worse performance when the advisory role of boards is more important. Contrary to claims made by proponents of destaggered boards, we find no evidence that CEOs are less entrenched after destaggering. We also provide some evidence suggesting that investment in R&D falls in the post-destaggering period, consistent with the view that after destaggering board members have shortened incentive horizons. Taken together, our evidence is contrary to the earlier studies that claim that destaggered boards are generally optimal and value-increasing.

Keywords: Staggered boards, classified boards, corporate governance

JEL Classification: G34, G30, M29

Suggested Citation

Ge, Weili and Tanlu, Lloyd D. and Zhang, Jenny Li, What Are the Consequences of Board Destaggering? (March 29, 2016). AAA 2014 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2312565 or http://dx.doi.org/10.2139/ssrn.2312565

Weili Ge

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Lloyd D. Tanlu (Contact Author)

Washington and Lee University ( email )

Lexington, VA 24450
United States

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Jenny Li Zhang

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
360
Abstract Views
4,362
rank
81,169
PlumX Metrics