A staggered board can substantially protect a firm’s incumbents from takeover in either a hostile acquisition or a proxy contest. We use the existence of a staggered board as enhanced takeover protection and examine the association between staggered boards and earnings manipulation. Following a rigorous procedure to identify a sample of restating firms that overstated earnings, manually collecting data on several governance characteristics and using a matched-pairs methodology, we find that firms with staggered boards are less likely to overstate earnings. One potential interpretation of our results is that staggered boards lessen takeover threats and thus mitigate managers’ pressure to overstate earnings.
Review of Quantitative Finance and Accounting – Springer Journals
Published: May 30, 2009
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