Boards

ECGI together with the Ira M.

Boards are working harder over time, but they may not be working better.

ECGI together with the Ira M.

Prof.

ECGI together with the Ira M.

We study how owners trade off the costs and bene ts of establishing a board in a historical setting, where boards are optional and authority over corporate decisions can be freely allocated across the general meeting, the board, and management. We  nd that large owners and boards are substitutes and that boards exist in  rms most prone to collective action problems. Boards monitor, advise, and mediate among shareholders, and these different roles entail different allocations of authority.

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 (and median) increase in Tobins Q for innovating firms, particularly those facing greater Wall Street scrutiny. This increase in value appears to come, at least in part, from increased investment in R&D and capital expenditures and from valuable patents.