Yakov Amihud, Markus M. Schmid and Steven Davidoff Solomon report:
There are two starkly different sides to the heated debate over staggered boards. On one are those who argue, based in part on work by Professors Lucian Bebchuk and Alma Cohen, that the staggered board is value decreasing because it enables the entrenchment of inefficient directors and management. On the other side are proponents of the exact opposite argument, based in part on work by Professors Martijn Cremers, Lubomir Litov, and Simone Sepe and on the views of lawyer Martin Lipton, that the staggered board increases firm value because it allows directors to bargain for higher takeover premiums and to have an undisturbed long-term investment strategy. These important and careful studies and this debate have driven recent law review policy proposals calling for either banning the staggered board or making it mandatory for all companies. Studies finding negative wealth effects of a staggered board have also undergirded a campaign by the Harvard Law School Shareholder Rights Project to push publicly-traded companies in the S&P 500 to eliminate their staggered boards.
In Settling the Staggered Board Debate, forthcoming in the University of Pennsylvania Law Review, we show that, empirically, neither side of the debate is right. The article gives clarity to the policy arguments and provides novel estimation results on the effects of a staggered board on firm value. Our empirical analysis builds on prior studies employing different estimations and shows that, contrary to the prior, major studies, a staggered board has no significant effect on firm value.
Those studies, including one by professors Bebchuk and Cohen, do not include important explanatory variables in their analyses that affect firm value and at the same time are correlated with the presence or absence of a staggered board.
With all due deference to Steven Davidoff, for whom I have immense respect, and all my other colleagues and friends who do empirical research, this is one of the many reasons why I am dubious of number crunching as an approach to solving legal questions: Fidgeting with the methodology can produce wildly different results, so how do you decide what result to trust?
