Can Staggered Boards Improve Value? Causal Evidence from Massachusetts

52 Pages Posted: 10 Sep 2016 Last revised: 11 Jun 2021

See all articles by Robert Daines

Robert Daines

Stanford Law School; Stanford Graduate School of Business; European Corporate Governance Institute (ECGI)

Shelley Xin Li

University of Southern California - Marshall School of Business

Charles C. Y. Wang

Harvard Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2021

Abstract

Staggered boards (SBs) are one of the most potent common entrenchment devices, and their value effects are considerably debated. We study SBs' effects on firm value, managerial behavior, and investor composition using a quasi-experimental setting: a 1990 law that imposed an SB on all Massachusetts-incorporated firms. The law led to an increase in Tobin's Q, investment in CAPEX and R&D, patents, higher-quality patented innovations, and resulted in higher profitability. These effects are concentrated in innovating firms, especially those facing greater Wall Street scrutiny. An increase in institutional and dedicated investors also accompanied the imposition of SBs, facilitating a longer-term orientation. The evidence suggests SBs can benefit early-life-cycle firms facing high information asymmetries by allowing their managers to focus on long-term investments and innovations.

Keywords: Staggered board; Entrenchment; Life-cycle; Tobin's Q; Investments; Innovation; Profitability; Institutional investors; Investor composition

JEL Classification: G18, G34, K22

Suggested Citation

Daines, Robert and Li, Xin and Wang, Charles C. Y., Can Staggered Boards Improve Value? Causal Evidence from Massachusetts (June 8, 2021). 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, Contemporary Accounting Research, Forthcoming, 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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Xin Li

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

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Charles C. Y. Wang (Contact Author)

Harvard Business School (HBS) ( email )

Soldiers Field
Boston, MA 02163
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
720
Abstract Views
4,315
rank
44,359
PlumX Metrics