Friday, December 20, 2013
In Staggered Boards and Firm Value, Revisited, Cremers et al consider the effect of staggered boards 0n firm value. The question of the staggered board has been central to many recent debates about the proper role of shareholders in corporate governance and takeovers. The conventional academic wisdom has been that staggered boards lower firm value because the increase the likelihood of entrenchment of directors. Now, Cremers and his co-authors are mixing it up a bit. They look at the data and reach a different conclusion -- staggered boards are associated with an increase in firm value. Here's the abstract:
This paper revisits the association between firm value (as proxied by Tobin’s Q) and whether the firm has a staggered board. As is well known, in the cross-section firms with a staggered board tend to have a lower value. Using a comprehensive sample for 1978-2011, we show an opposite result in the time series: firms that adopt a staggered board increase in firm value, while de-staggering is associated with a decrease in firm value. We further show that the decision to adopt a staggered board seems endogenous, and related to an ex ante lower firm value, which helps reconciling the existing cross-sectional results to our novel time series results. To explain our new results, we explore potential incentive problems in the shareholder-manager relationship. Short-term oriented shareholders may generate myopic incentives for the firm to underinvest in risky long-term projects. In this case, a staggered board may helpfully insulate the board from opportunistic shareholder pressure. Consistent with this, we find that the adoption of a staggered board has a stronger positive association with firm value for firms where such incentive problems are likely more severe: firms with more R&D, more intangible assets, more innovative and larger and thus likely more complex firms.