We study the effect of staggered boards on long-run firm value using a natural experiment: a 1990 law that imposed a staggered board on all firms incorporated in Massachusetts. We find a significant and positive average (and median) increase in Tobins Q for innovating firms, particularly those facing greater Wall Street scrutiny. This increase in value appears to come, at least in part, from increased investment in R&D and capital expenditures and from valuable patents.
Our findings suggest that staggered boards can be beneficial when firms and investors face information asymmetries – when firms are young, innovating, and reliant on R&D.
Perry Golkin Professor of Law, Co-Director
Professor of Business Law and Capital Markets Law