Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM
- Chair: Cesare Fracassi, University of Texas-Austin
Performance-Based Turnover on Corporate Boards
AbstractWe document an economically significant relation between director turnover and prior firm performance. This relation manifests in idiosyncratic stock returns consistent with relative performance evaluation and the monitoring of actions attributable to directors. The director turnover-performance sensitivity increases substantially throughout the 2000s, and varies with a number of governance characteristics, most notably with the presence of an active external blockholder. Directors who exit firms following poor performance are significantly less likely to obtain new directorships in the future. In sum, the threat of replacement for poor firm performance is an increasingly significant incentive for the directors of public corporations.
Death by Committee? An Analysis of Delegation in Corporate Boards
AbstractDid the corporate governance reforms of the early 2000s have unintended consequences? While readily observable board characteristics have not changed much over time, boards have increasingly delegated responsibilities to sub-committees staffed entirely by independent directors. Consistent with theoretical models on small group decision-making, we find evidence that delegation may have erected barriers to communication between inside and independent directors. Reform-induced delegation does not appear to be value- enhancing; average Tobin’s q decreases by 4.1% after the reforms. Sub-committees are relatively understudied, but our results suggest that ignoring them leads to an incomplete picture of corporate boards.
Board Diversity and Director Dissent in Corporate Boards
AbstractWhile several studies examine how differences in director characteristics impact firm-level performance outcomes, there is limited evidence that heterogeneous boards affect firm value by offering diverse opinions. This is partly due to data availability on the process and outcome of board decisions. We utilize Korean data on individual director voting at board meetings to directly measure director dissent as evidence of diversity of opinion. We find that directors in heterogeneous boards are more likely to vote against management proposals and reject them. Firms that experience proposal rejection exhibit lower return volatility, consistent with independent directors restricting CEO influence. Firm value implications of director dissent and proposal rejection varies depending on firm complexity and industry dynamism. Our results suggest that board diversity, by increasing dissenting opinions and proposal rejections, affects firm performance.
- G3 - Corporate Finance and Governance