Settling the Staggered Board Debate

Item Type Monograph (Working Paper)
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.
Authors Amihud, Yakov; Schmid, Markus & Davidoff Solomon, Steven
Subjects finance
HSG Classification contribution to scientific community
Date 8 September 2017
Publisher SoF-HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Volume 2017/13
Number 13
Number of Pages 38
Contact Email Address markus.schmid@unisg.ch
Depositing User Geraldine Frei-Böbel
Date Deposited 27 Nov 2017 11:09
Last Modified 20 Jul 2022 17:33
URI: https://www.alexandria.unisg.ch/publications/252732

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Amihud, Yakov; Schmid, Markus & Davidoff Solomon, Steven: Settling the Staggered Board Debate. School of Finance Working Paper Series, 2017, 13.

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https://www.alexandria.unisg.ch/id/eprint/252732
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