Board Declassification and Firm Value : Have Shareholders and Boards Really Destroyed Billions in Value?

This paper analyzes the wave of board destaggering that has occurred over the past fifteen years. Other studies have concluded that the result of this phenomenon has been a substantial destruction of firm value, purportedly caused by re-orienting management from a long-term to short-term focus. We conclude that these results reflect a spurious correlation. We find, first, that board destaggering has occurred disproportionately among firms of very large market capitalization and, second, that firms with very large market capitalization also experienced disproportionate and unrelated relative drops in Tobin's Q over the period in which destaggering has occurred. The association between destaggering and the drop in Tobin's Q becomes statistically insignificant once one compares destaggering firms with other firms of similar market capitalization. We analyze the claim that board destaggering is especially costly for firms with high R&D, and similarly find that once one takes account of unrelated differential fluctuations in Q among high- and low-R&D firms, there is no evidence that destaggering a board reduces the value of high-R&D firms. From a methodological perspective, our analysis suggests that corporate governance studies using difference-in-differences or within-firm designs should take account of the possibility that differential secular trends in asset prices may confound their results