Settling the Staggered Board Debate

38 Pages Posted: 11 Sep 2017 Last revised: 24 Jan 2018

See all articles by Yakov Amihud

Yakov Amihud

New York University - Stern School of Business

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Date Written: September 8, 2017

Abstract

We address the heated debate over the staggered board. One theory claims that a staggered board facilitates entrenchment of inefficient management and thus harms corporate value. Consequently, some institutional investors and shareholder rights advocates have argued for the elimination of the staggered board. The opposite theory is that staggered boards are value enhancing since they enable the board to focus on long-term goals. Both theories are supported by prior and conflicting studies and theoretical law review articles. We show that neither theory has empirical support and on average, a staggered board has no significant effect on firm value. Prior studies did not include important explanatory variables in their analysis or account for the changing nature of the firm over time. When we correct for these issues in a sample of up to 2,961 firms from 1990 to 2013 we find that the effect of a staggered board on firm value becomes statistically insignificant after controlling for variables that affect both value and the incidence of a staggered board. Notably, we find that the adoption of a staggered board, its retention, and its removal are not random and exogenous but are rather endogenous, being related to firm characteristics and performance. The effect of a staggered board is idiosyncratic; for some firms it increases value, while for other firms it is value destroying. Our results suggest caution about legal solutions which advocate wholesale adoption or repeal of the staggered board and instead point to an individualized firm approach.

Keywords: staggered board, classified boards, corporate governance, anti-takeover devices, E-Index, G-Index

JEL Classification: G34, K22

Suggested Citation

Amihud, Yakov and Schmid, Markus and Davidoff Solomon, Steven, Settling the Staggered Board Debate (September 8, 2017). University of Pennsylvania Law Review, Forthcoming; University of St.Gallen, School of Finance Research Paper No. 2017/13; UC Berkeley Public Law Research Paper. Available at SSRN: https://ssrn.com/abstract=3034492

Yakov Amihud

New York University - Stern School of Business ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0720 (Phone)
212-995-4233 (Fax)

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Steven Davidoff Solomon (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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