Staggered Boards, Accounting Discretion, and Firm Value

Motivated by agency theory, this study investigates how staggered boards influence accounting discretion. The results indicate that staggered boards do affect accounting discretion. In fact, the impact of staggered boards on accounting discretion is substantially larger (about seven times stronger) than the effect of all other corporate governance provisions combined. Firms with a staggered board exercise less income inflating accounting discretion. Further evidence reveals that accounting discretion has a benign effect on subsequent firm value. Yet, the presence of staggered boards reduces significantly the favourable effect of accounting discretion on subsequent firm performance. The evidence is robust to a large number of control variables including other governance provisions. The evidence is in line with the notion that staggered boards improve managers' job security, reduce managerial myopia, and thus induce managers to exercise less short-term transitory accounting discretion.