Does the Location of Directors Matter? Information Acquisition and Board Decisions

Abstract

Using data on over 4,000 individual residential addresses, we find that geographic distance between directors and corporate headquarters is related to information acquisition and board decisions. The fraction of a board’s unaffiliated directors who live near headquarters is higher when information-gathering needs are greater. When the fraction of unaffiliated directors living near headquarters is lower, non-routine CEO turnover is more sensitive to stock performance. Also, the level, intensity, and sensitivity of CEO equity-based pay increase with board distance. Overall, our results suggest that geographic location is an important dimension of board structure that influences directors’ costs of gathering information.

Keywords: Geography, Geographic Distance, Proximity, Board of Directors, Independence, Soft Information, Monitoring, CEO Compensation, Management Turnover

JEL Classification: G30, G34, G39, G29