Okay, a few years ago, I blogged about research suggesting that the much-maligned staggered board was actually good for shareholders. That renaissance lasted about two days, at which point it became painfully obvious that investors were having none of it. Now, I’m again peeking out of my shell to highlight another study that says staggered boards may be beneficial. Here’s the abstract:
Staggered boards (SBs) are one of the most potent common entrenchment devices, and their value effects are considerably debated. We study SBs’ effects on firm value, managerial behavior, and investor composition using a quasi-experimental setting: a 1990 law that imposed an SB on all Massachusetts-incorporated firms. The law led to an increase in Tobin’s Q, investment in CAPEX and R&D, patents, higher-quality patented innovations, and resulted in higher profitability. These effects are concentrated in innovating firms, especially those facing greater Wall Street scrutiny. An increase in institutional and dedicated investors also accompanied the imposition of SBs, facilitating a longer-term orientation. The evidence suggests SBs can benefit early-life-cycle firms facing high information asymmetries by allowing their managers to focus on long-term investments and innovations.
No, I’m not exactly sure what “Tobin’s Q” is either. You know who does know though? Cooley’s Cydney Posner, who has taken a deep dive into the study and its conclusions over on her blog. To me, the big takeaway from all of this is that while we’re all in favor of good corporate governance, the evidence continues to suggest that nobody really knows exactly what that is.
– John Jenkins