The effect of staggered boards on firm value
University of Amsterdam – Economie en Bedrijfskunde Noranne van Giessel Track: Finance and Organization Student number: 10625070
Abstract
This paper explores the association between staggered boards and firm value. Staggered boards prevent shareholders within two annual elections from replacing a majority of the board of directors. In my dataset about 60% of the US firms have adopted a staggered board in 2007. This has diminished to approximately 40% in 2014. My results are in line with the reduced amount of firms with a staggered board. I found that staggered boards have a negative relation with firm value during the period 2007 till 2014.
1. Introduction
After the latest financial crisis corporate governance practices became a subject of attention. Earlier the debate about the separation of ownership and management had risen by the collapse of Enron and WorldCom caused by corporate accounting scandals. The fall of established firms provide evidence that firms overlooked corporate governance (Joe et al., 2009). Corporate governance practices should reduce agency costs. In other words,
corporate governance stands for rules and principles to prevent managers from destroying value and encourage them to perform better with the aim to improve shareholder wealth and ensuring firm value (Conyon & Thomsen, 2012).
One of the potential solutions to the agency problem is the abolishment of staggered boards (DeAngelo & Rice, 1983). Staggered boards prevent shareholders within two annual elections from replacing a majority of the board of directors. Therefore staggered boards make it harder to gain control of a firm in either a hostile takeover or a stand-alone proxy contest. A stand-alone proxy contest is a strategy that is used by the acquiring firm to persuade shareholders to use their proxy votes to replace the incumbent directors by board members who are much more agreeable to the takeover (Bebchuk & Cohen, 2005).
Proponents of staggered boards argue that a staggered board improves stability and focus on the long-term, which enhance the firm’s ability to create value. However,
opponents argue that staggered boards increase power of managers and weaken the control rights of shareholders. This can result in rejecting attractive acquisition offers, engaging in empire building and extracting private benefits. The debate about the influence of staggered boards on firm value exists for a long time (Bebchuk & Cohen, 2005; Faleye, 2007; Stein, 1988; Stulz, 1988).
In the last decade the resistance against staggered boards has risen. Since 2000 institutional investors have believed that decreased firm value is partly caused by staggered boards. They are supporters of the agency theory and believe that staggered boards can lead to entrenchment of the managers (Bebchuk, 2003).
In this research I investigated if staggered boards decrease firm value. My research question is: Are US firms with a staggered board associated with a decrease in firm value, measured by Tobin’s Q, during the period 2007 until 2014?
To answer this research question I have used a dataset that consists of 582 firms. Those firms are incorporated in the US and I have collected data of these firms for each year
in the period 2007 till 2014. I obtained the results by running OLS regressions and fixed effects regressions. The model that I used to test the hypothesis, staggered boards have a negative association with firm value, have as the dependent variable Tobin’s Q. Tobin’s Q is a measure for firm value. The independent variable is a dummy variable that equals one if the firm has a staggered board and zero otherwise. The control variables are Delaware
incorporation, S&P500 return, ROA, board size, CEO duality, leverage, investment opportunity and firm size. I found in three of the four regressions a negative significant relation between staggered boards and firm value. My results are questioning the assertion that staggered boards are in favour of shareholders and improve the firm’s ability to create wealth. On the other hand, the evidence I found is in line with the agency theory. Staggered boards can cause entrenched managers and result in practices that lower firm value. The recent wave of shareholder activism and the associated decreased number of firms with a staggered board could be justified. Although, my analysis has some limitations. The first one is the chance of omitted variable bias. Another limitation is simultaneous causality. These issues complicate the interpretation of my results. Nevertheless, the results of my research in this more recent period can be a contribution to the existing literature because the most recent sample period in prior literature is from 1995 till 2002.
The analysis proceeds as follows. The second section reviews the related empirical literature. Section 3 present the dataset, methodology and descriptive statistics. In section 4 I describe my results. The next section I discuss these results and I relate the results to the existing literature. Also the limitations of this research will be discussed in this section. Section 6 concludes. The reference list is provided in section 7. Finally, in section 8 I include in the appendices a table for a robustness check, descriptive tables and a list of the variables and firms.
2. Literature review
In this section I describe theories that explain the influence of staggered boards on firm value. Then I will discuss the most related papers and how this research improves the existing work. The hypothesis will follow from the literature.
Most of the public firms have separated ownership and control. Executives are hired by the owners to manage the firm on their behalf. According to the agency theory
interest between the managers and the owners. To ensure managers will act in the interest of shareholders a board is elected by shareholders with the aim to direct corporate
governance issues.
The board roles can be divided in three functions. The first role is the monitoring function. It is the board’s responsibility to control the managers on behalf of shareholders. John & Senbet (1998) argue that boards could be an effective solution to the agency
problem. Their research concluded that the quality of management decisions is improved by monitoring. The other roles of a board are creating networks with important stakeholders and procuring advice to managers (Conyon & Thomsen, 2012).
This paper will focus on the monitoring role of the board. The question is if it is preferable to have a firm with a staggered board or if it is more desirable to have a firm without a staggered board.
A majority of the US public companies have adopted a staggered board when they went public. This is a powerful antitakeover measure. On average the staggered board is divided into three classes, where one class is elected in an annual meeting. Therefore it takes at least two annual elections to take over the company (Bebchuk, Coates IV &
Subramanian, 2002). The consequences are that it is harder to gain control of a firm in either a hostile takeover or a stand-alone proxy contest.
In a hostile takeover the bidder place an attractive offer to persuade shareholders to replace the board with other directors, normally appointed by the hostile bidder itself (Bebchuk & Cohen, 2005). Another way to remove the existing board is by a stand-alone proxy contest. A stand-alone proxy contest is started by a competitor who wants to replace the holders but continue to run the firm as a stand-alone entity. The rival have to win two elections to gain control of the firm. The rival is not sure if their offer is accepted without waiting a period of at least one year. In this period the rival cannot benefit from the
advantages of synergies and they will have to wait until they gain control of the firm before they can carry out long-term plans. Another disadvantage for the bidder is that it is costly. The bidder have to make an irrevocable offer because otherwise shareholders would not vote for the bidder in the first selection (Bebchuk and Hart, 2002).
The effect of a staggered boards is that it weakens the control rights of large
shareholders and increase the power of managers. The risk that agency costs arise increases (Bebchuk, Coates IV & Subramanian, 2002). Agency costs arise when managers act in their
own interests instead of the interests of shareholders. A shareholder is a partial owner of a firm through bought and thereby owned shares of that firm. When the firm is profitable, they pay out dividends to the shareholders. It is in shareholders’ interest that the firm value will be maximized. On the other hand, the interest of managers is to benefit themselves (Jensen and Meckling, 1976). Except the separation of ownership and management and disaligned interests the agency theory has some more assumptions. Other assumptions are that shareholders are risk averse and dislike uncertainty. Another key element in the agency problem is information asymmetry. The principal is less informed about the activities and abilities of the agent and how the firm is managed than the principal him- or herself. Information asymmetry can be divided in two main problems.
The first one is adverse selection. These problems tend to occur before the owners make a decision. Adverse selection problems concern about hire the right managers and if necessary replace the bad ones.
The second problem is moral hazard. Moral hazard problems occur after the decision of the owner and is about motivating the managers to do the best they can. Some moral hazard problems are excess expenditure or self-dealing. This are examples that are beneficial for managers but decrease firm value. Another problem that is beneficial for managers but not for shareholders is entrenchment. Managers make it difficult to fire them and then stay on too long by creating barriers. (Bebchuk & Cohen, 2005; Conyon & Thomsen; Cremers & Nair, 2005; Duru et al., 2013; Gompers et al., 2003; Faleye, 2007). Entrenched managers can be caused by adopting a staggered board. This can result in rejecting attractive acquisition offers, engaging in empire building and extracting private benefits (Bebchuk et al., 2004). Another disadvantage from entrenched managers is that it reduces director accountability to owners (Faleye, 2007). Furthermore, inefficient managers have a higher chance of getting fired. Therefore it is more likely they want to protect their position. By adopting antitakeover provisions inefficient managers are further entrenched which would harm shareholders (Stráska & Waller, 2010). Bebchuck and Cohen (2005) argue that entrenched managers have an incentive to dispossess shareholders' wealth.
In short, agency theory predicts that staggered boards have a negative influence on firm value.
The paper of Gompers et al. (2003) found in 1999 a decrease in Tobin’s Q of 11.4% points by an one-point increase in the governance index, this is identical to adding a single
governance provision. In the beginning of the decade an one-point increase in the
governance index is related to a decrease of 2.2% points in Tobin’s Q. So the difference has increased significantly compared to the beginning of the decade. There can be concluded that the results tell a consistent story. During the 1990s firms with the weakest shareholder rights significantly underperformed compared with firms who have the strongest
shareholder rights. The empirical relationship of the governance index with corporate performance is analysed over the time period 1990-1999. The governance index provides 24 corporate governance provisions, where staggered boards are one of them.
Bebchuk and Cohen (2005) extend the work of Gompers et al. (2003) by adding a control variable for other provisions. This paper investigates empirically whether staggered boards presented in a majority of American companies are associated with a lower firm value over the time period 1995-2002. They find a statistically significant and economically meaningful association between staggered boards and a reduced firm value.
Another empirical research showed that staggered boards decrease firm value even when firms are complex. Despite the fact that those firms should probably benefit the most from staggered boards. There is also evidence provided that lower director effectiveness and entrenched management diminish firm value caused by staggered boards. The sample is based on 2072 proxy statements submitted to the US Securities and Exchange Commision during 1995-2002 (Faleye, 2007).
In my dataset 61% of the US firms had a staggered board in 2007 and in 2014 this was only 38%. The number of staggered boards is not constant over time compared to paper of Bebchuk and Cohen (2005), where the number of firms with a staggered board remain around 61% over the years 1995 till 2002. The agency theory suggests an explanation for the decreased amount of firms over the period 2007 till 2014. The growing resistance against staggered boards is developed in the last decade. Since 2000 institutional investors have believed that lower shareholder wealth is partly caused by staggered boards, because staggered boards can lead to entrenchment of the managers. The changed view became clear in the voting preference. In 1987 16.4% of the owners vote in favour for removing the staggered board, in 2000 this has increased to 52.7% of the owners. Besides that,
shareholders tend to support proposals to disassemble existing staggered boards (Bebchuk, 2003). Institutional Shareholder Services and the Harvard project are corporate governance activists who exert pressure on firms to persuade them into destaggering (Duru et al., 2013).
These proposals to destagger have appeared in proxy statements since 2005. Firms are adapting to the will of shareholders (Bebchuk & Cohen, 2005). This behaviour seem irrational as it raises the risk for managers of being fired.
On the other hand, there are advantages for managers to destagger the board. When a manager holds equity of the firm, they profit from an increase in firm value. If destaggering the board would improve firm value, this could be an incentive for a manager to remove the staggered board. Evidence for an increase in firm value from firms that decide to remove their staggered board is provided by the paper of Re-Jin Guo et al. (2008).
The second reason why managers would destagger the board is due to media
pressure. This is based on the analysis from the institutional investors on board effectiveness published by Business Week. If the firm is included on the list of worst boards, negative and significant economic effects are expected for these firms. This force these firms to take action and force managers of the board to execute their responsibilities with more
conscientiousness (Joe et al., 2009). One of the actions firms can undertake is to destagger their board. Among other things, Bebchuk et al. (2004) found that one of the board
characteristics that influence firm value is a staggered board. They found a significant decrease of using staggered boards in the amount of firms that were included in the sample over the two years after this publication in Business Week. This sample contains the twenty-five best and worst boards that are listed in the Business Week articles. This is suggesting that after this exposure managers from the worst boards get less entrenched.
However, not all boards choose to follow the majority shareholders approved solution to destagger the board. During the period 1997-2003 68.70% of the resolutions calling for disassemble a staggered board were not fulfilled in 2004 (Bebchuk & Cohen, 2005; Bebchuk et al., 2002).
Defenders argue that staggered boards can increase shareholder value by focussing on the long-term, increase stability and improve the bargaining position in a takeover (Stráska & Waller, 2010). The takeover-pressure view suggests that a firm with a better bargaining position in a takeover will benefit shareholders. Transferring negotiation power from shareholders to managers enables managers to pull out a higher acquisition premium during the bargaining transactions (DeAngelo & Rice, 1983; Stulz, 1988).
The study of Stráska and Waller (2010) selected firms with the characteristics low shareholder concentration, low relative equity valuation and low managerial ownership.
These are the firms with less bargaining power in a takeover. The results show that for these firms it is value-enhancing to adopt more antitakeover provisions.
Another empirical study found a positive relation between higher acquisition premium and a staggered board is by Bates et al. (2008). The data set includes US public firms published by the Investor Resposibility Research Center during the period 1990 till 2002.
Proponents suggest that board stability is an advantage of staggered boards that are not accessible when directors are chosen annually. Stability supposed to increase the ability to create firm value by ensure a continuity from year to year. Koppes et al. (1999) and Wilcox (2002) also suggest that board independence is enhanced by staggered boards. Staggered boards decrease the threat that a director who not give in to management will not be re-elected each year. Moreover, some directors have an aversion for the election process. Having no staggered board could stop good directors for apply to those boards. Faleye (2007) have not found a significant relation between the turnover rate for
independent directors and staggered boards. There is no evidence that staggered boards improve board independence or stability. On the other hand, the papers of Ahn and
Shrestha (2013) and Shivdasani and Yermack (1999) found a positive relation between board stability and firm value.
Directors who are on the board for a longer period tend to have a longer-term focus than directors who can only participate on projects of one year (Koppes et al., 1999). The takeover-pressure view suggests that takeover pressure persuades management on making investments on the short-term. Staggered boards mitigate takeover pressure and thereby encourage long-term investment (Baysinger & Butler, 1985). This is in the best interest of shareholders and lower managerial myopia (Shleiffer & Summer, 1988). Managerial myopia is discussed in the paper of Stein (1988) and stands for the fear of being bought out at an underrated price. This lead to an focus on short term profits instead of long-term objectives by management. Beyond this problem the whole mental corporate culture is under pressure to higher the next quarters earnings when profits drop (Kuttner, 1986). This increases the risk of fraud.
Both proponents and opponents have used theories to explain why staggered boards are favourable or not, but this gives no obvious answer (Gompers et al., 2003). Which theory outweigh the other must be demonstrated by empirical research. Since 2005 appear in proxy
statements proposals to destagger. The effect is noticeable in my dataset when we look to the decrease of numbers of firms who have a staggered board. In 2007 61% of the firms in my dataset had a staggered board which is diminished to 38% in 2014. In comparison with the paper of Bebchuk and Cohen (2005) where about 61% of the US firms in their dataset had adopted a staggered board. The number of firms with a staggered board remains approximately constant in the time period 1995 till 2002. Moreover after the latest financial crisis corporate governance practices became a subject of attention. This period of downturn could affect the amount of staggered boards in both ways. Firms who concentrated on long term investment could benefit more than they would in a stable period. In the existing literature the most recent sample period is from 1995 till 2002. Therefore it would be interesting to research if there is a decreased effect on firm value through the existence of a staggered board in US firms in this more recent period. These results can contribute in enhancing firm value.
The decreased number of staggered boards by 2014 suggests that the management entrenchment theory will outweigh the advantages of staggered boards. To answer the research question the following hypothesis is constructed:
H1: Staggered boards of US firms have a negative influence on Tobin’s Q during the period 2007 till 2014.
3. Methodology
This section will describe from which databases I gathered the dataset. I explain the
variables in the dataset and the descriptive statistics from this dataset are defined. Then the method that I will use to test the model is described and of course the model that I use is displayed.
The sample is collected for US firms in the period 2007 till 2014. This data is gathered by using Wharton Research Data Services. The final dataset includes 582 firms in each year after the data was merged and cleaned. I have checked the data on outliers and only the firms with data available for every variable and each year is included.
All the components for the dependent variable, Tobin’s Q, are collected on
CRSP/Compustat Merged, Fundamentals Annual. I used the definition of Tobin’s Q that is used by Kaplan and Zingales (1997). That definition is the ratio of the market value of assets divided by the book value of assets. This ratio is computed as the book values of preferred
equity and long-term debt plus the market value of common equity divided by the book value of assets. The ratio of the market value of assets and the book value of assets should reflect the effect of staggered boards on firm value, assuming that the market correctly estimates the value of firms. The main reason for using Tobin’s Q as measurement for firm value is that it is a long-term measure. Other advantages are that it considers return and risk, it reflects the firm’s capability to improve performance over time and the present value of future profits is recognized (Caton et al., 2001; Salinger, 1984).
I also collected the control variables Delaware incorporation, total assets, capital expenditures, leverage and ROA from this database.
I included a Delaware dummy variable to control for the relatively greater protections to incumbent management in Delaware (Grove et al., 2011).
Markarian and Parbonetti (2007) found evidence for potential effects from organizational characteristics on corporate governance and that corporate governance influence firm performance. To control for organizational characteristics I constructed the variable firm size as the natural log of total assets (Grove et al., 2011).
Capital expenditure is the ratio of capital expenditures to total assets. In general is a higher investment opportunity positive related with firm value. Concerning the traditional valuation theory equals the value of the firm the discounted net present value of investment opportunities that are expected to be accessible to the company in the future plus the expected earnings generated from the existing assets (McConnell & Muscarella, 1985). Leverage is computed by the ratio of book value of debt to the market value of equity. The role leverage can play is that debtholders execute the monitoring role.
Debtholders have a higher competence and incentives to exert control over the company. This improves firm value by enhancing corporate governance (Jensen & Meckling, 1976). This is reducing the agency problem. Debtholders also inclined to be more conservative and are more probable to restrict the risk-taking activities of a company (Levine, 2004; Mintz, 2005).
ROA is the ratio of operating income (before depreciation) to total assets in fiscal year t -1. It measures the operating profitability in the fiscal year before.
The independent variable, staggered board, is gathered on ISS Governance. The staggered board variable is a dummy variable and equals one if the firm has adopted a staggered board and zero otherwise.
There is evidence provided that board size influence firm performance both negatively and positively. Jensen (1993) argued that the ability of the board to monitor management diminishes as board size increase due to higher potential to shirk. The productivity of the board and thereby the effectiveness of corporate governance mechanisms decrease. On the other hand, in a larger board is the diversity of experts higher (Dalton, Daily, Johnson, & Ellstrand, 1999; Yermack, 1996). ISS Directors published data about board size.
Also the data for CEO duality is available at ISS Directors. CEO duality is that the CEO of a firm is also the chairman of the board. The role of the chairman is to control the actions of the CEO. If these two leadership roles are combined, would it constrain the objective monitoring role of the chairman of the board. This promotes agency costs (Beasley, Carcello, & Hermanson, 1999; Yermack, 1996).
The last control variable the return on stock of S&P500 is extracted from
CRSP/Compustat Merged, Security Monthly. This variable accounts for fluctuations in the market per year, for example the economic crisis.
The descriptive statistics are given in the tables 1A-1C.
Table 1A presents summary statistics for the amount of firms with a staggered board in percentage. Throughout the period 2007 to 2014 the amount of firms that have a
staggered board is diminished. In 2007 60,65% of the firms have adopted a staggered board
by 2014 this is decreased to 37,97%.
Table 1B report the descriptive statistics for the variables used in my research. The mean of Tobin’s Q is 1.7968. The book values of these companies are lower than their market values, suggesting that most of the companies perform well.
The median and standard deviation of the control variables are comparable to prior literature (Duru et al., 2013; Faleye, 2007). The return on market stocks from the S&P500 has a minimum of -13.0% and a maximum of almost 24.0%. This indicates that the market is volatile during the period 2007 till 2014. The median of the control variable total assets is only $3.3 billion, while the corresponding mean is approximately $16.8 billion. This suggest that firm size varies considerably among the firms in the data set. On average are these firms profitable with an operating income of 10.7% while spending 4.6% of total assets on new investment opportunities and are leveraged with 16.7% of total assets. In the data set are about 58.0% of the companies incorporated in Delaware. With regard to corporate
governance characteristics consists the average board of nine members. A CEO that is also serving the position of chairman is in about 57.3% the case in the firms in the sample.
Table 1C describes a correlation matrix for the main variables in the sample. Tobin’s Q is small but positively correlated with staggered boards. The correlation is not significant at 5%, therefore the correlation can be seen as zero. This suggests that staggered boards are not related with firm value. This seems conflicting with the decreased number of staggered boards over the studied time period. From the other variables only the variable CEO duality has a positive and significant association with staggered boards. Another logic explainable correlation is the positive correlation between the coefficient of the return on the market stock of S&P500 and the coefficient of firm value. When the market is going up, firm value increases. On the other hand, leverage, board size and firm size are negatively correlated with Tobin’s Q. The other correlation coefficients are much lower correlated with Tobin’s Q.
Another check that can be done on the basis of the Pearson correlation table is the check for multicollinearity. When two or more explaining variables in a regression model are highly correlated multicollinearity exists. The problem of large standard errors arise.
Therefore increase the chance that a good predictor of the dependent variable will be rejected from the model because the coefficient will be insignificant. Therefore I included return on assets in fiscal year t-1. When I would have included return on assets in fiscal year t, the correlation between Tobin’s Q and ROA would be very high because both variables measure firm performance. In the correlation matrix can be found a high correlation
between the predictors board size and firm size. This is also the case in the existing literature (Duru et al., 2013). When firm size increase the board size will also increase. A logical
explanation is that a large firm needs more board members to monitor the actions of the managers. Despite, those two variables are not excluded from the equation.
In this paper I research the relationship between staggered boards and firm value using an OLS regression and a fixed effects regression on the sample data. For the OLS regression I used cross-sectional data. With the OLS regression I can learn about the relationship among Tobin’s Q and staggered boards by studying differences across firms during a single time period. Because of low significance coefficients in the results of the OLS regression, which can be caused by omitted variable bias, I also used the fixed effect
regression. The fixed effects model account for the variables wherefore no data is available. This regression uses panel data to control for variables that are constant over time but differ
across companies. The panel data is characterized by eight different time periods for all 582 firms. The fixed effect regression compares the variation within each of these 582 firms over time. The observed firms are those who changed from staggered board to non-staggered board or the other way around.
In order to test my hypothesis a t-test on every coefficient is executed. To account for potential heteroscedasticity White (1980) robust standard errors are applied. (Bebchuk & Cohen, 2005: Gompers et al., 2003).
The following model is used to answer my research question:
Tobin’s Qi,t = ß0 + ß1i,t *Staggered boards + ß2i,t * Log(total assets) + ß3i,t *Delaware incorporation + ß4i,t *ROA + ß5i,t * Investment profitability+ ß6i,t * CEO duality + ß7i,t * Leverage + ß8i,t * Board size + ß9i,t * Stock price + ɛi,t
4. Results
In this section I will describe the results of the regressions on the above described dataset. First, the table with the used models are specified. This table, table 2, displays the results of the runned regressions. Then I inspect the fraction of the variance of the dependent variable that is explained by the independent variables and how well the regression models fit. Finally, I describe the estimated coefficients of the variables for each model.
Table 2 presents the regression results using two empirical approaches with staggered board as independent variable and Tobin’s Q as dependent variable during the period 2007 till 2014. The results are estimated on the basis of four regressions. Model 1 and 2 present an OLS regression. Model 3 and 4 present the results of the fixed effects
regressions. The performed regressions are made up in two blocks of control variables. The odd numbers present the models with the control variables Delaware incorporation, return on S&P500 and the log of total assets. The even numbers represent the models where all the control variables are included.
In the columns (1) to (4) are found a R-squared value varying from 4.09% to 7.93%. The R-squared measures the fraction of the variance of the dependent variable that is explained by the independent variables. A R-squared close to null means that there are other important factors influencing the dependent variable (Stock & Watson, 2012).
To examine how well the regression models fit, the F-test is computed. All the models are significant at the 1% level.
In general are the estimated coefficients of the control variables consistent with previous studies (Bebchuck & Cohan, 2005; Duru et al., 2013; Falaye, 2007).
Table 2
Staggered boards and firm value
* denotes statistical significance at the 10% level for one-tailed test ** denotes statistical significance at the 5% level for one-tailed test *** denotes statistical significance at the 1% level for one-tailed test
Table 2 demonstrates that in all four regressions the coefficients of the S&P500 return are positive and significant at 1%. The coefficient of board size is in both models not significant.
The OLS regressions have both a significant coefficient at 1% for the variable Delaware incorporation and total assets in log. Tobin’s Q is positively influenced when the firm is incorporated in Delaware and negatively influenced by firm size. Model 1 present a negative significant relation between staggered boards and Tobin’s Q. All the coefficients in model 1 are significant at least at 5%. The second model finds no significant relation
between Tobin’s Q and staggered boards. The coefficient ROA is also not significant at 10%. If the firm has a CEO who is also chairman of the board, Tobin’s Q will increase. A significant coefficient of the variables investment opportunity and leverage shows that Tobin’s Q is
Variables (1) (2) (3) (4) Staggered board -0.0641 ** (0.0309) -0.0463 (0.0310) -0.1267*** (0.0394) -0.1100*** (0.0385) Return S&P500 0.5906*** (0.1169) 0.0118*** (0.0030) 0.5756*** (0.0510) 0.5431*** (0.0545) Delware incorporation 0.0820 *** (0.0307) 0.0817*** (0.0304) Log(total assets) -0.1423*** (0.0097) -0.1185*** (0.01197) -0.0701 (0.0881) 0.0018 (0.0905) CEO duality 0.0615*** (0.0311) -0.0179 (0.0369) Board size -0.0027 (0.0083) -0.0119 (0.0135) ROA -0.0005 (0.0017) 0.0019*** (0.0007) Investment opportunity 1.8985*** (0.2970) 1.3829*** (0.4094) Leverage -1.2172*** (0.1090) -0.9083*** (0.3069) Constant 2.9301*** (0.0956) 2.3586*** (0.1627) 2.4159*** (0.7313) 2.0286*** (0.7799)
Firm fixed effects No No Yes Yes
Adjusted R-square 0.0520 0.0793 0.0409 0.0456
F-test 0.0000 0.0000 0.0000 0.0000
Number of
negatively influenced by leverage and positively influenced by investment opportunities. The dummy variable for corporation in Delaware is in all the fixed effects regressions omitted because the variable remains consistent over time.
In model 5 and 6 I found a statistically significant (p<0.01) relation between staggered board and Tobin’s Q. In both models is firm size not significant. In model 6 are all the other coefficients of the control variables except CEO duality significant. Increasing leverage is associated with a lower value of Tobin’s Q. ROA and investment opportunities have a positive relation with Tobin’s Q.
For a robustness check, I ran annual regressions. The results of all annual regressions are reported in table 3. Table 3 indicates that except in year 2007 in each year the coefficient of staggered board is not significant. Only in 2007 the coefficient of staggered boards is significant at 5%.
5. Discussion
In this section the results presented above are discussed and related to prior literature. After that I describe the limitations of my analysis.
My results of the regression models show a coefficient on staggered boards that is negative and statistically significant at the 5% level in the first regression and at the 1% level in the third and fourth regressions. These findings support the hypothesis that staggered boards are associated with a decrease in US firm value measured by Tobin’s Q in this more recent period compared to the existing literature. This suggest that the advantages of staggered boards are outweighed by the disadvantages. The negative relation between staggered boards and firm value are according to the agency theory caused by entrenched managers. This can result in rejecting attractive acquisition offers, engaging in empire building and extracting private benefits. This is in line with prior researches from Faleye (2007) and Bebchuk and Cohen (2005). It is also consistent with shareholders activists, who put pressure on firms to destagger. In model 2 I found no statistically meaningful relation between Tobin’s Q and staggered boards.
The first limitation of the above results is the chance of self-selection. Staggered boards could be selected by deficiently performing managers to protect themselves from takeovers or by low-value firms who are more vulnerable to a takeover (Bebchuk & Cohen, 2005; Faleye, 2007). Is the correlation between firm value and the selection of staggered
boards brought about by companies with a lower firm value? Or do staggered boards
produce a lower firm value? This simultaneous problem is hard to resolve and it is difficult to determine the direction of causation.
The second limitation of my research is a potential endogeneity problem. I assumed that the mechanisms of board election are exogenous. Though, there are many other factors that influence the adoption of a staggered board. Examples are firm specific circumstances as managerial capacity or the corporate culture in a firm. Therefore, the tests are subject to a potential endogeneity problem which can cause potential bias.
There are different takeover defences. These takeover defences can be combined with a staggered board. A firm can have adopted a staggered board combined with a poison pill. This practically ensures that the approval of the directors of the firm is needed to acquire the firm. The anti-takeover effect of a staggered board is increased (Bebchuk et al., 2002; Daines, 2001). The model does not take into account the combination of takeover defences.
In the period I undertook this research a financial crisis occurred. Many
consequences of the crisis are not taken into account. One of the many examples are the decreased level of consumer confidence during a crisis. Ludgivson (2004) found evidence for the association between the real economy and consumer confidence.
Another limitation of my research is that not all the control variables are included in the model in comparison with prior literature. The control variable block ownership is not included because the data was not published for the years 2007 till 2014. Furthermore, there was insufficient data available to add the variable R&D expenses. I also did not add firm age to the model. There is no database that have collected the age of firms. One way to collect the age of firms is to count how many years ago a firm went public, but this is not reliable. Lastly, insider ownership is not added because this information is not available for most of the firms in the sample. However, this should only be a problem in the OLS
regression. Using the fixed effects regression should resolve this problem.
In all the regressions the significant coefficients of the variable total assets in log are negative. This suggests that when the total return on assets increase, firm value decrease. This seems not logical and is not in line with the traditional valuation theory. Though, similar results are found in the paper of Duru et al. (2013).
6. Conclusion
This section summarize the findings of my research and answers the research question. I also provide suggestions for further research.
Between 2007 and 2014 the amount of US firms that have adopted a staggered board in my dataset is decreased from 60.65% to 37.97%. This can be explained by the wave of shareholder activism who focuses on destaggering boards. Those are supporters of the agency theory and believe that staggered boards can lead to entrenchment of the managers. They argue that staggered boards increase power of managers and weaken the control rights of shareholders. This can result in rejecting attractive acquisition offers, engaging in empire building and extracting private benefits. On the other hand, proponents of staggered boards argue that staggered boards improves stability and the focus on the long-term, which enhance the firm’s ability to create value. The debate about the influence of staggered boards on firm value exists for a long time. In this paper I research empirically whether staggered boards increase or decrease US firm value during 2007 till 2014. I found evidence that staggered boards are related with a decrease in firm value. These results are in line with the agency theory, staggered boards benefit managers at the expense of shareholders. It is also consistent with upcoming activists who exert pressure on firms to destagger and the corresponding amount of firms who removed their staggered board.
My analysis has several limitations. The possibility that omitted variable bias occur increases by not taking into account the combination of takeover defences, not adding all control variables in the model and the endogeneity problem. Another limitation is
simultaneous causality.
To account for simultaneous causality it could be interesting to investigate the effect of Tobin’s Q on staggered boards. Do firms with a constant lower firm value adopt more often a staggered board to protect themselves from a takeover? Finally, it could be interesting to extend this research to other countries. Although, it seems less common to adopt a staggered board in for example Europe. Is there a reason for that?
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8. Appendices
Appendix A: Descriptive statistics
Table 1A
Frequency of staggered boards
This table provides the percentage of all firms that have a staggered board in each of the years 2007 till 2014.
Table 1B Descriptive statistics for full sample
Variable Obs Mean Std. Dev. Min Max q1 Median q3 Tobin’s Q 4656 1.7968 1.0555 .5334 12.8417 1.1166 1.4432 2.1004 Staggered board 4656 .5107 .4999 0.0000 1.0000 0.0000 1.0000 1.0000 Return S&P500 4656 .0391 .1310 -.1302 .2383 -0.0951 0.0408 0.1566 Delaware incorporation 4656 .5825 .4932 0.0000 1.0000 0.0000 1.0000 1.0000 Total assets 4656 16789.5400 59302.3000 89.6650 1119796.0000 1180.5020 3349.8760 10189.8300 Log( total assets) 4656 8.2306 1.6123 4.4961 13.9287 7.0798 8.1107 9.2291 CEO duality 4656 .5726 .4948 0.0000 1.0000 0.0000 1.0000 1.0000 Board size 4656 9.4985 2.1216 4.0000 14.0000 8.0000 9.0000 11.0000 ROA 4656 .1068 5.3637 -154.7808 218.9515 -0.1337 -0.0026 0.1099 Investment opportunity 4656 .0457 .0541 0.0000 .4955 0.0133 0.0291 0.0581 Leverage 4656 .1669 .1392 0.0000 .8469 0.0353 0.1532 0.2656 Table 1C
Pairwise correlations for all variables
Year Staggered Board (%) 2007 60.65 2008 58.59 2009 57.56 2010 54.98 2011 49.83 2012 46.39 2013 42.61 2014 37.97 Tobin’s Q Staggered board Delaware incorporation Log(total assets) CEO duality Board size Investment opportunity Leverage Return S&P500 ROA Tobin’s Q 1.0000 Staggered 0.0140 1.0000 0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 70,00% 2007 2008 2009 2010 2011 2012 2013 2014 Per cen ta ge o f fi rms wi th st ag ger ed boar ds Year
* denotes statistical significance at the 5% level
Appendix B: Merged data
I collected the sample data from three different databases. The variables Tobin’s Q, Delaware incorporation, total assets, investment opportunity, leverage and ROA are gathered from CRSP/Compustat Merged, Fundamentals Annual. The variable staggered board are collected from ISS Governance. The data for the variables CEO duality and board size are published by ISS Directors. The last control variable return on S&P500 did I collect from CRSP/Compustat Merged, Security Monthly.
Before I merged the data, the control variable size is computed by counting the members of the board. I did that with the function countif in excel. After that I removed the duplicates. Then I only kept the values of board size with the highest number.
After computing size, I merged the dataset from ISS Directors and ISS Governance by using tickers. Thereafter I merged this dataset with the dataset from CRSP/Compustat Merged, Fundamentals Annual. Then again I merged this dataset with the variable return on S&P500.
The following step is to compare firms in each year. I divided the complete merged dataset by year. The firms in the dataset for 2007 did I compare with the firms in the dataset from 2008. I did that for every year, so 2007 compared with 2008, 2009 etcetera. Hereafter the dataset for 2007 contained only the firms were data is available for in each year. Then again I compared this dataset to every year. Now the whole dataset contains in each year the same firms.
board Delaware incorporation 0.0382* 0.0417 1.0000 Log( total assets) -0.2105* -0.2010* -0.0054 1.0000 CEO duality -0.0037 0.0611* -0.0228 0.1372* 1.0000 Board size -0.1477* -0.0639* -0.1320* 0.6029* 0.0301* 1.0000 Investment opportunity 0.0896* -0.0306* 0.0037 -0.0787* 0.0332* -0.1147* 1.0000 Leverage -0.1743* -0.0373* 0.0024 0.1925* 0.0303* 0.1264* 0.1613* 1.0000 Return S&P500 0.0707* -0.0125 0.0000 0.0137 -0.0398* -0.0044 -0.0204 -0.0318* 1.0000 ROA 0.0005 0.0118 0.0016 -0.0144 0.0060 -0.0189 0.0007 -0.0115 -0.0116 1.0000
Appendix C: Robustness check
Table 3
Staggered boards and firm value—annual regressions
* denotes statistical significance at the 10% level for one-tailed test ** denotes statistical significance at the 5% level for one-tailed test *** denotes statistical significance at the 1% level for one-tailed test
Appendix D: Overview variables
Table 4 Variable definitions Variables 2007 2008 2009 2010 2011 2012 2013 2014 Staggered board -0.1661* (0.0991) -0.1376 (0.0856) -0.0517 (0.0746) (0.0794) -0.0026 -0.0250 (0.0757) -0.0144 (0.0809) 0.0635 (0.0995) 0.0779 (0.1188) Return S&P500 Delware incorporation 0.1237 (0.0960) 0.0057 (0.0757) 0.0983 (0.0731) (0.0809) 0.12054 0.0649 (0.0777) 0.0342 (0.0799) 0.1081 (0.0923) 0.0985 (0.1018) Log(total assets) -0.1111*** (0.0408) -0.1159*** (0.0366) -0.0871*** (0.0326) (0.0319) -0.1048*** -0.1147*** (0.0321) -0.1230*** (0.0321) -0.1524*** (0.0310) -0.1565*** (0.0319) CEO duality 0.0425 (0.0939) 0.0730 (0.0861) 0.0349 (0.0786) 0.1260 (0.0846) 0.0572 (0.0768) 0.0422 (0.0778) 0.1131 (0.0906) 0.2132** (0.1019) Board size -0.0486* (0.0266) 0.01988 (0.0201) -0.0134 (0.0192) -0.0220 (0.0230) 0.0159 (0.0221) 0.0122 (0.0251) 0.0124 (0.0256) 0.0297 (0.0268) ROA 0.0226 (0.0158) 0.0119 (0.0318) -0.0042* (0.00025) -0.0039 (0.0015) 0.0152 (0.6802) -0.0003 (0.0026) 0.0096*** (0.0022) 0.1934 (0.2051) Investment opportunity 1.1715* (0.6380) 0.5279 (0.4483) 3.2715*** (0.9470) (1.1511) 3.2055*** 2.0282*** (0.6802) 1.5660** (0.7099) 4.0261*** (1.2730) 1.6938 (1.1359) Leverage -1.9349*** (0.3459) -1.1340*** (0.2603) -1.5118*** (0.2543) -1.6392*** (0.2734) -1.0826*** (0.3028) -0.8081*** 0.2803 -1.1178*** (0.3301) -0.5855 (0.3850) Constant 3.6131*** (0.3217) 2.5124*** (0.2841) 2.5853*** (0.2552) 2.8286*** (0.2504) 2.4994*** (0.2515) 2.6544*** 0.2606 2.9864*** (0.2855) 2.8500** (0.2892) Variables Definition
Appendix E: Overview firms
Table 5
List of included companies Included companies
Abbott Laboratories Exxon Mobil Corp Om Group Inc Abm Industries Inc F5 Networks Inc Omnicare Inc Acuity Brands Inc Factset Research Systems Inc Omnicell Inc Adobe Systems Inc Fair Isaac Corp Omnicom Group Adtran Inc Fairchild Semiconductor Intl On Assignment Inc Advance Auto Parts Inc Family Dollar Stores Owens & Minor Inc Advanced Energy Inds Inc Faro Technologies Inc Paccar Inc
Aes Corp Fastenal Co Packaging Corp Of America Affymetrix Inc Fei Co Panera Bread Co
Aflac Inc First Cash Financial Svcs Papa Johns International Inc Agco Corp First Commonwlth Finl Cp/Pa Parexel International Corp Agilent Technologies Inc First Finl Bancorp Inc/Oh Parker-Hannifin Corp Agl Resources Inc First Midwest Bancorp Inc Patterson-Uti Energy Inc Air Products & Chemicals Inc Firstenergy Corp Pctel Inc
Akamai Technologies Inc Firstmerit Corp Penn Virginia Corp Alaska Air Group Inc Fiserv Inc Pepco Holdings Inc Albany Intl Corp -Cl A Flir Systems Inc Pepsico Inc
Albemarle Corp Flowers Foods Inc Perficient Inc
Alcoa Inc Flowserve Corp Pericom Semiconductor Corp Allergan Inc Fluor Corp Petroquest Energy Inc Alliance Data Systems Corp Fmc Corp Pfizer Inc
Alliant Energy Corp Fmc Technologies Inc Pg&E Corp
Allstate Corp Forward Air Corp Piedmont Natural Gas Co Altera Corp Franklin Resources Inc Pinnacle West Capital Corp Altria Group Inc Fuller (H. B.) Co Pioneer Natural Resources Co Amazon.Com Inc G&K Services Inc -Cl A Plexus Corp
Amedisys Inc Gatx Corp Plum Creek Timber Co Inc Ameren Corp General Communication -Cl A Pnc Financial Svcs Group Inc American Electric Power Co Gentex Corp Pnm Resources Inc
American Express Co Genuine Parts Co Polaris Industries Inc American Financial Group Inc Gilead Sciences Inc Polycom Inc
Tobin’s Q the ratio of the book values of preferred equity and long-term debt plus the market value of common equity divided by the book value of assets Staggered board a dummy variable that equals one if the firms has a staggered board and
zero otherwise
Return S&P500 the return on the stock of the S&P500
Delaware incorporation a dummy variable that equals one if the firm is incorporated in Delaware and zero otherwise
Log(total assets) the natural log of total assets in million dollars
CEO duality a dummy variable that equals one if the CEO is also the chairman of the board and zero otherwise
Board size the number of directors serving on the board
ROA the ratio of operating income (before depreciation) to total assets in fiscal year t-1
Investment opportunity the ratio of capital expenditures to total assets
American States Water Co Goldman Sachs Group Inc Polyone Corp Ameriprise Financial Inc Graco Inc Pool Corp
Ametek Inc Grainger (W W) Inc Ppg Industries Inc Amgen Inc Granite Construction Inc Ppl Corp
Amn Healthcare Services Inc Great Plains Energy Inc Praxair Inc
Anadarko Petroleum Corp Griffon Corp Price (T. Rowe) Group Analog Devices Gulf Island Fabrication Inc Privatebancorp Inc Analogic Corp Halliburton Co Proassurance Corp Anixter Intl Inc Hancock Holding Co Procter & Gamble Co Ansys Inc Harley-Davidson Inc Progressive Corp-Ohio Apple Inc Harman International Inds Prosperity Bancshares Inc Applied Industrial Tech Inc Harmonic Inc Quaker Chemical Corp Applied Materials Inc Harris Corp Qualcomm Inc
Aptargroup Inc Harsco Corp Quest Diagnostics Inc Archer-Daniels-Midland Co Hartford Financial Services Questar Corp
Arrow Electronics Inc Hasbro Inc Quiksilver Inc
Arthur J Gallagher & Co Haverty Furniture Raymond James Financial Corp Associated Banc-Corp Hawaiian Electric Inds Rayonier Inc
Assurant Inc Hcc Insurance Holdings Inc Red Robin Gourmet Burgers Astec Industries Inc Health Net Inc Regal Beloit Corp
Astoria Financial Corp Healthcare Services Group Regeneron Pharmaceuticals Atmel Corp Healthways Inc Reliance Steel & Aluminum Co Atmos Energy Corp Heartland Express Inc Republic Services Inc
Atwood Oceanics Heidrick & Struggles Intl Rli Corp
Automatic Data Processing Helmerich & Payne Robert Half Intl Inc Avery Dennison Corp Henry (Jack) & Associates Rockwell Collins Inc Avnet Inc Hershey Co Rogers Corp Avon Products Hms Holdings Corp Rollins Inc
Baker Hughes Inc Hologic Inc Roper Technologies Inc Ball Corp Horace Mann Educators Corp Rti Intl Metals Inc
Bank Mutual Corp Hormel Foods Corp Rudolph Technologies Inc Bank Of Hawaii Corp Hornbeck Offshore Svcs Inc Ruths Hospitality Group Inc Bard (C.R.) Inc Hospira Inc Ryder System Inc
Barnes Group Inc Hospitality Properties Trust Ryland Group Inc
Baxter International Inc Hub Group Inc -Cl A Safety Insurance Group Inc Bb&T Corp Hudson City Bancorp Inc Sanderson Farms Inc Becton Dickinson & Co Hunt (Jb) Transprt Svcs Inc Sandisk Corp
Bemis Co Inc Iconix Brand Group Inc Scansource Inc Benchmark Electronics Inc Icu Medical Inc Schein (Henry) Inc Berkley (W R) Corp Idex Corp Schwab (Charles) Corp Big 5 Sporting Goods Corp Idexx Labs Inc Schweitzer-Mauduit Intl Inc Bill Barrett Corp Illinois Tool Works Scientific Games Corp Black Hills Corp Infinity Property & Cas Corp Scotts Miracle-Gro Co Blackbaud Inc Informatica Corp Seacor Holdings Inc Blue Nile Inc Ingram Micro Inc Sei Investments Co Borgwarner Inc Insight Enterprises Inc Selective Ins Group Inc Boston Beer Inc -Cl A Intel Corp Sempra Energy
Boston Private Finl Holdings Interpublic Group Of Cos Sensient Technologies Corp Boston Scientific Corp Intevac Inc Service Corp International Boyd Gaming Corp Intl Business Machines Corp Sherwin-Williams Co Briggs & Stratton Intl Flavors & Fragrances Sigma-Aldrich Corp Brinker Intl Inc Intl Game Technology Signature Bank/Ny Brinks Co Invacare Corp Silicon Laboratories Inc Bristol-Myers Squibb Co Itron Inc Simpson Manufacturing Inc
Brooks Automation Inc Itt Educational Services Inc Skechers U S A Inc Brown & Brown Inc J & J Snack Foods Corp Skywest Inc
Brunswick Corp Jabil Circuit Inc Skyworks Solutions Inc Buffalo Wild Wings Inc Jack In The Box Inc Snap-On Inc
Cabot Corp Jacobs Engineering Group Inc Sonic Automotive Inc -Cl A Cabot Microelectronics Corp Janus Capital Group Inc Sonoco Products Co Cabot Oil & Gas Corp Jetblue Airways Corp Sotheby's
Caci Intl Inc -Cl A Johnson & Johnson South Jersey Industries Inc Cadence Design Systems Inc Johnson Controls Inc Southern Co
Callaway Golf Co Jones Lang Lasalle Inc Southwest Airlines Cambrex Corp Joy Global Inc Southwest Gas Corp Cameron International Corp Juniper Networks Inc Southwestern Energy Co Campbell Soup Co Kaman Corp Spartan Motors Inc Capital One Financial Corp Kb Home Spx Corp
Carbo Ceramics Inc Kbr Inc St Jude Medical Inc
Career Education Corp Kellogg Co Stancorp Financial Group Inc Carlisle Cos Inc Kennametal Inc Standard Motor Prods Carpenter Technology Corp Kimberly-Clark Corp Standex International Corp Cash America Intl Inc Kindred Healthcare Inc Steel Dynamics Inc
Castle (A M) & Co Kirby Corp Stericycle Inc
Cathay General Bancorp Kla-Tencor Corp Stewart Information Services Cdi Corp Knight Transportation Inc Stone Energy Corp
Celgene Corp Kulicke & Soffa Industries Strayer Education Inc Centene Corp L-3 Communications Hldgs Inc Stryker Corp
Century Aluminum Co Lancaster Colony Corp Sturm Ruger & Co Inc Cerner Corp Landstar System Inc Suntrust Banks Inc
Charles River Labs Intl Inc Lauder (Estee) Cos Inc -Cl A Superior Energy Services Inc Checkpoint Systems Inc Leggett & Platt Inc Superior Industries Intl Cheesecake Factory Inc Lennox International Inc Surmodics Inc
Chesapeake Energy Corp Leucadia National Corp Synaptics Inc Chevron Corp Lexmark Intl Inc -Cl A Synnex Corp Chipotle Mexican Grill Inc Lhc Group Inc Synopsys Inc Chubb Corp Lifepoint Health Inc Sysco Corp Church & Dwight Inc Lilly (Eli) & Co Teco Energy Inc Ciber Inc Lincoln Electric Hldgs Inc Teleflex Inc Cigna Corp Lincoln National Corp Teradyne Inc Cimarex Energy Co Lindsay Corp Terex Corp Cincinnati Financial Corp Lithia Motors Inc -Cl A Tesoro Corp Cisco Systems Inc Littelfuse Inc Tetra Tech Inc
Citrix Systems Inc Loews Corp Tetra Technologies Inc/De City National Corp Louisiana-Pacific Corp Texas Roadhouse Inc Clarcor Inc Lydall Inc Textron Inc
Cme Group Inc M & T Bank Corp Thermo Fisher Scientific Inc Cms Energy Corp Manpowergroup Thor Industries Inc
Coach Inc Mantech Intl Corp Timken Co Coca-Cola Co Marinemax Inc Toll Brothers Inc
Cognizant Tech Solutions Marsh & Mclennan Cos Tootsie Roll Industries Inc Cohu Inc Martin Marietta Materials Toro Co
Colgate-Palmolive Co Masco Corp Total System Services Inc Columbia Banking System Inc Matthews Intl Corp -Cl A Tractor Supply Co
Comerica Inc Maximus Inc Tredegar Corp Commercial Metals Mcdonald's Corp Treehouse Foods Inc Community Bank System Inc Mdc Holdings Inc Trimble Navigation Ltd Concur Technologies Inc Mdu Resources Group Inc Trinity Industries
Consol Energy Inc Meadwestvaco Corp Trustco Bank Corp/Ny Convergys Corp Mercury General Corp Ttm Technologies Inc Copart Inc Mercury Systems Inc Tyler Technologies Inc Costco Wholesale Corp Meredith Corp Tyson Foods Inc -Cl A Covance Inc Meridian Bioscience Inc Ugi Corp
Crane Co Merit Medical Systems Inc Uil Holdings Corp Crocs Inc Meritage Homes Corp Ultratech Inc Cryolife Inc Metlife Inc Umb Financial Corp Csg Systems Intl Inc Micrel Inc Umpqua Holdings Corp Cts Corp Microsemi Corp Unifirst Corp
Cubic Corp Minerals Technologies Inc Unit Corp
Cullen/Frost Bankers Inc Mks Instruments Inc United Technologies Corp Cummins Inc Mobile Mini Inc Universal Electronics Inc Curtiss-Wright Corp Molina Healthcare Inc Universal Forest Prods Inc Cvs Health Corp Monarch Casino & Resort Inc Universal Health Svcs Inc Cypress Semiconductor Corp Monsanto Co Universal Technical Inst Cytec Industries Inc Monster Worldwide Inc Valmont Industries Inc D R Horton Inc Moog Inc -Cl A Valspar Corp
Danaher Corp Msc Industrial Direct -Cl A Varian Medical Systems Inc Dealertrack Technologies Inc Mts Systems Corp Vca Inc
Deere & Co Mueller Industries Vectren Corp
Deltic Timber Corp Multimedia Games Holding Co Veeco Instruments Inc Devry Education Group Inc Murphy Oil Corp Verizon Communications Inc Diebold Inc National Fuel Gas Co Vertex Pharmaceuticals Inc Digi International Inc National Instruments Corp Vf Corp
Dime Community Bancshares National Oilwell Varco Inc Vicor Corp
Diodes Inc National Penn Bancshares Inc Vishay Intertechnology Inc Disney (Walt) Co National Presto Inds Inc Waddell&Reed Finl Inc -Cl A Donaldson Co Inc Navigant Consulting Inc Washington Federal Inc Donnelley (R R) & Sons Co Navigators Group Inc Waste Connections Inc Dover Corp Neenah Paper Inc Waters Corp
Dow Chemical Netflix Inc Watts Water Technologies Inc Drew Industries Inc Netgear Inc Wausau Paper Corp
Dril-Quip Inc New Jersey Resources Corp Wd-40 Co
Dsp Group Inc New York Cmnty Bancorp Inc Webster Financial Corp Dst Systems Inc New York Times Co -Cl A Werner Enterprises Inc Dte Energy Co Newell Brands Inc West Pharmaceutical Svsc Inc Du Pont (E I) De Nemours Newfield Exploration Co Westamerica Bancorporation Dycom Industries Inc Newmont Mining Corp Westar Energy Inc
East West Bancorp Inc Newport Corp Western Digital Corp Eastman Chemical Co Nisource Inc Weyerhaeuser Co Ebay Inc Nordson Corp Wgl Holdings Inc Ecolab Inc Norfolk Southern Corp Whole Foods Market Inc Emc Corp/Ma Northern Trust Corp Williams Cos Inc
Emcor Group Inc Northrop Grumman Corp Winnebago Industries Emerson Electric Co Northwest Natural Gas Co Wintrust Financial Corp Energen Corp Nucor Corp Wolverine World Wide Enpro Industries Inc Nvr Inc Woodward Inc
Entergy Corp Occidental Petroleum Corp World Fuel Services Corp Eog Resources Inc Oceaneering International Wyndham Worldwide Corp Epiq Systems Inc Oge Energy Corp Xcel Energy Inc
Equifax Inc Old Dominion Freight Xerox Corp
Ethan Allen Interiors Inc Old National Bancorp Zebra Technologies Cp -Cl A Exelon Corp Old Republic Intl Corp Zimmer Biomet Holdings Inc
