Why Do Dual-Class Firms Have Staggered Boards?

Abstract

Conventional wisdom regards the combination of a staggered board with a dual-class capital structure as superfluous. However, the incidence of this combination in U.S. firms, identified in this Paper, is not trivial. This Paper considers a few possible motivations for this practice and reports the results of empirical studies conducted on dual-class firms with staggered boards. Significantly, even in the universe of dual-class capital structures, effective staggered boards are associated with lower firm value. These findings suggest that entrenchment may not fully explain the correlation between lower value and staggered boards in single-class firms.

Keywords: staggered board, classified board, dual class, entrenchment, corporate governance, agency costs, boards, directors, takeovers, anti-takeover

JEL Classification: G32, G34, K22