Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment
50 Pages Posted: 10 Sep 2016 Last revised: 11 Oct 2018
Date Written: October 2018
We study the effect of staggered boards (SBs) on managers' behavior and on long-run firm value using a natural experiment: a 1990 law that imposed a SB on all firms incorporated in Massachusetts. We find that the law led to an increase in Tobin's Q, increased investment in capital expenditure and R&D, more patents, less earnings management and higher ROA. These effects are concentrated at innovating firms―those firms that are early-life-cycle or engage in R&D spending―and especially at those facing Wall Street scrutiny. Collectively, the evidence suggests that early-life-cycle firms facing high information asymmetries benefit from staggered boards, in part because managers make more valuable long-term investments and reduce myopic behavior.
Keywords: Staggered board, entrenchment, life-cycle, Tobin's Q, investments, profitability.
JEL Classification: G18, G34, K22
Suggested Citation: Suggested Citation