Estimating the effect of entrenched boards on firm value using geographic identification

We show that firms located geographically close to one another share a similar probability of having staggered boards (or classified boards), an effect probably due to investor clientele, local competition, and social interactions. We then exploit the variation across the zip codes in the incidence of staggered boards and estimate the effect of staggered boards on firm value (measured by Tobin’s Q). We use as our instrumental variable the proportion of firms located in the same zip code that have staggered boards, excluding firm i. The evidence shows that staggered boards reduce firm value significantly.