Do Staggered Boards Affect Firm Value?

We reexamine the negative relation between firm value and staggered boards. We document that firms with characteristics indicating low power to bargain for favorable terms in a takeover, but also indicating high potential agency costs, are more likely to have a staggered board in place. We also find that among these firms, those with staggered boards have higher valuation, as measured by Tobin’s Q. This result is robust to various controls for endogeneity. Our evidence suggests that staggering the board is beneficial for certain firms and challenges the commonplace view that board classification is an antitakeover device that necessarily harms shareholders.

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Capital Structure, Staggered Boards, and Firm Value

Financial Analysts Journal ◽

10.2469/faj.v64.n1.7 ◽

2008 ◽

Vol 64 (1) ◽

pp. 49-60 ◽

Cited By ~ 33

Author(s):

Pornsit Jiraporn ◽

Yixin Liu

Keyword(s):

Capital Structure ◽

Firm Value ◽

Staggered Boards

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Staggered Boards and Earnings Management

The Accounting Review ◽

10.2308/accr.2008.83.5.1347 ◽

2008 ◽

Vol 83 (5) ◽

pp. 1347-1381 ◽

Cited By ~ 95

Author(s):

Yijiang Zhao ◽

Kung H. Chen

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Firm Value ◽

Small Sample ◽

Negatively Associated ◽

Large Sample ◽

Absolute Value ◽

Staggered Boards ◽

Sample Test ◽

The Absolute

ABSTRACT: The literature suggests that staggered boards may have two opposite effects on earnings management: the expropriation view emphasizes the exacerbating effect, whereas the quiet life view advocates the mitigating effect. We use two approaches to examine this issue: a small-sample test based on whether firms are accused of committing financial reporting fraud, and a large-sample test based on the absolute value of unexpected accruals. We find that staggered boards are associated with lower likelihoods of committing fraud and smaller magnitudes of absolute unexpected accruals. Consistent with prior studies, we also find that staggered boards are negatively associated with firm value. The results suggest that staggered boards may enable managers to enjoy the quiet life and lessen their motivation to increase firm value; as a consequence, managers are not motivated to manage earnings.

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