CLS Blue Sky Blog

Staggered Boards and Long-Term Firm Value, Revisited

For a long time, the academic literature has largely supported the view that staggered boards — which require challengers to win at least two election cycles to gain a board majority — entrench directors and managers to the detriment of shareholders.[1] Empirically, this view was based on the finding of a negative association between having a staggered board and firm value. In our new article, “Staggered Boards and Long-Term Firm Value, Revisited,” forthcoming in the Journal of Financial Economics, we reconsider the staggered board debate using a comprehensive sample period (1978–2015) and document evidence that suggests the opposite conclusion.

Focusing on the long-term association of firm value with staggered boards, we find that the adoption of a staggered board has a statistically and economically significant positive impact on firm value. Accordingly, our study challenges the one-size-fits-all policy that favors the annual election of directors and is currently supported by many proxy advisory firms and other shareholder advocates. As previously explored in our paper, “The Shareholder Value of Empowered Boards,” published in the Stanford Law Review in 2016, this indicates that it might be the right time for policymakers as well as institutional investors to reconsider the role of staggered boards in corporate governance.

Our new study provides a comprehensive econometric analysis by performing several tests to evaluate the causal relationship between the adoption of a staggered board and firm value. These tests include regressions of changes in value on changes in board structure, different matching procedures, dynamic GMM estimation, and exogenous variation in Massachusetts corporate law. These results confirm that there is no evidence that staggered boards have a negative association with firm value. Rather, we document that adopting (removing) a staggered board is associated with an increase (decrease) in long-term firm value, especially in more innovative firms or where stakeholder investments are more relevant (e.g., with a large customer or in a strategic alliance).

Among others, the identification strategies that we employ to mitigate endogeneity concerns (i.e., the risk of mistaking correlation for causation) include the following:

Overall, our results confirm that the long-dominant entrenchment view of staggered boards is not supported by the data, while indicating that staggered boards could contribute to firm value by preventing inefficient takeovers or serving to bond a firm’s commitment to the firm’s long-term stakeholders. Accordingly, we hope that our new results will encourage proxy advisory firms and shareholder advocates to reconsidering any one-size-fits-all opposition to staggered boards.


[1] See Gompers, Ishi and Metrick, 2003; Bebchuk and Cohen, 2005; Masulis, Wang, and Xie, 2007; Faleye, 2007; Bebchuk, Cohen and Ferrell, 2009.

[2] See Bushee, 1998; Cremers, Pareek, and Sautner, 2016.

This post comes to use from Professor Martijn Cremers at the University of Notre Dame’s Mendoza College of Business and Professor Simone M. Sepe at the University of Arizona’s James E. Rogers College of Law and Institute for Advanced Study in Toulouse—Fondation Jean-Jacques Laffont—Toulouse School of Economics. It is based on their recent article, coauthored with Lubomir P. Litov, “Staggered Boards and Long-Term Firm Value, Revisited,” available here. The online appendix is available here.

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