How do staggered boards affect shareholder value? Evidence from a natural experiment

The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulin...

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Bibliographic Details
Published in:Journal of financial economics 2013-12, Vol.110 (3), p.627-641
Main Authors: Cohen, Alma, Wang, Charles C.Y.
Format: Article
Language:English
Subjects:
Agency cost
Airgas
Anti takeover strategy
Antitakeover provision
Board of directors
Boards of directors
Chancery Court
Corporate governance
Correlation analysis
Delaware
Firm value
Litigation
Market
Market value
Proxy fight
Staggered board
State court decisions
Stockholders
Studies
Take-overs
Takeover defense
Tobin's
U.S.A
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Summary:The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings—separated by several weeks and going in opposite directions—that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2013.08.005