Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment

50 Pages Posted: 10 Sep 2016 Last revised: 11 Oct 2018

See all articles by Robert Daines

Robert Daines

Stanford Law School; Stanford Graduate School of Business

Shelley Xin Li

University of Southern California - Marshall School of Business

Charles C. Y. Wang

Harvard Business School

Date Written: October 2018

Abstract

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

Daines, Robert and Li, Xin and Wang, Charles C. Y., Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment (October 2018). Harvard Business School Accounting & Management Unit Working Paper No. 16-105; Stanford Law and Economics Olin Working Paper No. 498; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 499/2017. Available at SSRN: https://ssrn.com/abstract=2836463 or http://dx.doi.org/10.2139/ssrn.2836463

Robert Daines

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-736-2684 (Phone)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Xin Li

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Charles C. Y. Wang (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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