Overview
This paper examines the impact of staggered boards on the value of voting rights, measured through the voting premium estimated using option prices. We find that firms with staggered boards exhibit a higher voting premium. Exploiting plausibly exogenous court rulings, we show that weakening the effectiveness of staggered boards leads to a decrease in the voting premium. Since the voting premium reflects private benefits consumption and associated managerial inefficiencies, these results are consistent with the entrenchment view of staggered boards. Cross-sectional evidence further indicates that this entrenchment effect is more pronounced in non-competitive industries and in mature firms.
Project researchers
Oğuzhan Karakaş
Cambridge Judge Business School – Finance Subject Group; European Corporate Governance Institute (ECGI)
Mahdi Mohseni
Washington, DC
Research summary
The research examines how staggered boards affect the value of voting rights and what this reveals about the role of board structure in corporate governance. A staggered (or classified) board is one in which directors serve overlapping terms, meaning only a fraction of the board can be replaced in any given year. While staggered boards are often criticised for entrenching management and reducing accountability, this study evaluates their impact through a novel lens: the market value investors place on voting power.
