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Settling the Staggered Board Debate

Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2017-09-08
Author(s)
Amihud, Yakov
Schmid, Markus  
Davidoff Solomon, Steven
Abstract (De)
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.
HSG Classification
contribution to scientific community
Publisher
SoF-HSG
Publisher place
St. Gallen
Volume
2017/13
Number
13
Pages
38
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/101990
Subject(s)

finance

Division(s)

s/bf - Swiss Institut...

Contact Email Address
markus.schmid@unisg.ch
Eprints ID
252732
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