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Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment

We study the effect of staggered boards on long-run firm value, using a natural experiment: a 1990 law that imposed a staggered board on all firms incorporated in Massachusetts. We find a significant and positive average increase in Tobin's Q among the Massachusetts treated firms, suggesting that staggered boards can be beneficial for early-life-cycle firms, which exhibit greater information asymmetries between insiders and investors. These results are validated using a larger sample of firms from the Investor Responsibility Research Center. In exploring possible channels for these effects, we find that the effects are stronger among innovating Massachusetts firms, particularly those facing greater Wall Street scrutiny. The evidence is consistent with staggered boards improving managers' incentives to make long-term investments.