Can Staggered Boards Improve Value? Causal Evidence from Massachusetts
52 Pages Posted: 3 Jul 2021 Last revised: 13 Apr 2022
Date Written: June 14, 2021
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. We find that relative to a matched control group of companies, for treated companies 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, Life-cycle, Tobin’s Q, Investments, Innovation, Investor composition
JEL Classification: G18, G34, K22
Suggested Citation: Suggested Citation