Explaining the Staggered Board Discount

Abstract

We argue that the documented discount on firms with staggered boards is not evidence that staggered boards destroy firm value. Instead, firms that are already discounted relative to industry peers choose to adopt a staggered board. We find that when the macroeconomic environment is weak, deeply discounted firms, especially those in industries undergoing extensive merger activity, are more likely to choose (or retain) staggered boards than other types of firms. We use three econometric techniques to control for the decision to have a staggered board and find that the staggered board discount suggested by OLS regressions drops, and in some cases, even becomes a small premium. Staggered boards do not necessarily cause a loss of firm value after adoption but rather, are a symptom of other underlying factors that cause the market to impute a discount to the firm.