Reexamining Staggered Boards and Shareholder Value

Cohen, Alma; Wang, Charles C. Y.

doi:10.2139/ssrn.2985152

Cited by 4 publications

(11 citation statements)

References 26 publications

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“…We also provide new evidence about the channels through which SBs may improve value for these firms. Although the MA setting does not allow clean identification of the causal effect of SBs for the largest mature public firms, our reduced‐form cross‐sectional regression analyses suggest that SBs are, on average, harmful for these firms, consistent with the event‐study evidence of Cohen and Wang (2017). 5…”

Section: Introductionsupporting

confidence: 75%

“…The MA law provides a unique setting to study the long‐term effects of SBs, something other quasi‐experimental settings leveraged by SB studies have been unable to do (e.g., Cohen and Wang 2013, 2017). 12…”

Section: Legal and Institutional Backgroundmentioning

confidence: 99%

“…A body of empirical research generally supports this view. For example, Bebchuk and Cohen (2005) document a strong and negative association between SBs and firm value, as measured by Tobin's Q. SBs are associated with lower shareholder value (Guo et al 2008; Cohen and Wang 2013, 2017), smaller gains to shareholders in completed takeovers (Bebchuk et al 2002a, 2002b), worse acquisition decisions (Masulis et al 2007), and weaker board monitoring (Faleye 2007).…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, the negative correlation between SBs and firm value may reflect selection rather than causation. Although recent research has begun to address causation (e.g., Cohen and Wang 2013, 2017; Cremers et al 2017), causal inference in prior research on SBs remains problematic and contested (Catan and Klausner 2017; Amihud et al 2018). Second, there is limited evidence about the mechanisms through which SBs might affect firm value (e.g., SBs' impact on managerial or shareholder behavior).…”

Section: Introductionmentioning

confidence: 99%

“…4 4 Cohen and Wang (2013, 2017) examine the impact of an SB in a quasi‐experimental setting. However, their setting does not allow a direct examination of SBs' long‐run effects on firm value or the causal mechanisms.…”

mentioning

confidence: 99%

See 4 more Smart Citations

Can Staggered Boards Improve Value? Causal Evidence from Massachusetts*

Daines

Wang³

2021

Contemporary Accting Res

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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 SBs on all Massachusetts-incorporated firms. We find that relative to a matched control group of companies, for treated companies the law led to an increase in Tobin's Q, investment in capital expenditures and R&D, patents, and higher-quality patented innovations, resulting 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 longerterm orientation. The evidence suggests that SBs can benefit early-life-cycle firms facing high information asymmetries by allowing their managers to focus on long-term investments and innovations.

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Section: Introductionsupporting

confidence: 75%

Section: Legal and Institutional Backgroundmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Can Staggered Boards Improve Value? Causal Evidence from Massachusetts*

Daines

Wang³

2021

Contemporary Accting Res

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The decline of corporate governance and the transfer of wealth from public investors to private equity

Vithayathil

Sierra

2022

J Corp Accounting Finance

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Supermajority provisions and shareholders wealth: Evidence from South Korea's natural experiment

Kim

Han

2021

Corporate Governance

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Research Question/Issue: The existing research continues to debate whether firms' anti-takeover provisions enhance or harm shareholders' wealth. In this study, we examine the causal relation between the supermajority provision and shareholders' wealth by employing a quasi-natural experiment: the two court rulings that weaken the anti-takeover force of the supermajority provision in Korea, where the supermajority provision is the most widely used anti-takeover provision.Research Findings/Insights: Using market reactions around the two court rulings, we find that firms with a supermajority provision as their only anti-takeover provision significantly underperform on average, compared with firms with no provision. This finding is robust to various empirical approaches that aim to address potential endogeneity concerns. We also find evidence that the supermajority provision plays a more significant role for firms with long-term investments, higher complexity, or higher takeover threats. Furthermore, the second among the two court rulings appears to have a stronger impact on the firm value and institutional investors' selling compared with the first one, suggesting the reinforcing effect of similar court decisions.Theoretical/Academic Implications: Our study contributes to the corporate governance literature by investigating the effect of the supermajority provisions on shareholders' wealth. While conventional wisdom holds that the anti-takeover provisions harm shareholders' rights and wealth, our evidence from the quasi-natural experiment in Korea suggests that the positive effect of the supermajority provision empirically dominates the negative effect. Overall, our study supports the value-enhancing perspective on the supermajority provision, indicating that the Korean stock market views such a provision as inducing higher shareholders' wealth.Practitioner/Policy Implications: This study highlights that a more contextual view of the relation between the anti-takeover provisions and shareholders' wealth is necessary. Moreover, we suggest that a regulation prohibiting firms' anti-takeover provisions might harm shareholders' wealth, but it appears that a firm-specific approach should be considered.

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Reexamining Staggered Boards and Shareholder Value

Cited by 4 publications

References 26 publications

Can Staggered Boards Improve Value? Causal Evidence from Massachusetts*

Can Staggered Boards Improve Value? Causal Evidence from Massachusetts*

The decline of corporate governance and the transfer of wealth from public investors to private equity

Supermajority provisions and shareholders wealth: Evidence from South Korea's natural experiment

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