Can Staggered Boards Improve Value? Causal Evidence from Massachusetts

Can Staggered Boards Improve Value? Causal Evidence from Massachusetts

Robert Daines, Shelley Xin Li, Charles Wang

Series number :

Serial Number: 
499/2017

Date posted :

September 10 2016

Last revised :

February 11 2021
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Keywords

  • Staggered board; entrenchment; life-cycle; Tobin's Q; investments; innovation; profitability; institutional investors; investor composition

We study the effect of staggered boards (SBs) using a quasi-experiment: 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 at 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 that early-life-cycle firms facing high information asymmetries benefit from SBs by allowing managers to focus on long-term investments and innovations.

Authors

Real name:
Shelley Xin Li