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Settling the Staggered Board Debate

We address the heated debate over the staggered board. One theory claims that a staggered board facilitates entrenchment of inefficient management and thus harms corporate value. Consequently, some institutional investors and shareholder‐rights advocates have argued for the elimination of the staggered board. The opposite theory is that staggered boards are value‐enhancing since they enable the board to focus on long‐term goals. Both theories are supported by prior and conflicting studies and theoretical law review articles. We show that neither theory has empirical support and, on average, a staggered board has no significant effect on firm value. Prior studies did not include important explanatory variables in their analysis or account for the changing nature of the firm over time. When we control for variables affecting both value and the incidence of a staggered board in a sample of up to 2961 firms from 1990 to 2013 we find the effect of a staggered board on firm value becomes statistically insignificant. Notably, we find that the adoption of a staggered board, its retention, and its removal are not random and exogenous but rather endogenous, being related to firm characteristics and performance. The effect of a staggered board is idiosyncratic; for some firms it increases value, while for other firms it is value‐destroying. Our results suggest caution about legal solutions that advocate wholesale adoption or repeal of the staggered board and instead point to an individualized firm approach.