Local Director Talent and Board Composition
U.S. Securities and Exchange Commission
U.S. Securities and Exchange Commission (SEC)
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
November 11, 2009
This study explores the effects of local director labor markets near firm headquarters locations on board structure. We examine whether firms are able to attract more independent directors to their boards when a larger pool of prospective directors (officers and directors of other firms, financial institutions and universities) is located near the firm. Empirically, firms located near large pools of prospective directors have a larger percentage of independent directors and directors with executive expertise on their boards. Firms located closer to financial institutions and universities attract a larger percentage of directors with financial and academic expertise, respectively. The effects of local director labor markets on board composition is concentrated among firms with lower visibility and firms that benefit more from specific knowledge. Following 2002 governance reforms, we find that firms have increasingly expanded their search for independent directors beyond local labor markets. We use our findings on director labor market determinants of board composition to reexamine the relation between board independence and firm value.
Keywords: board of directors, director labor market, location, firm value
JEL Classification: G30, G34
Date posted: August 7, 2009 ; Last revised: January 29, 2010
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