The Supply of Corporate Directors and Board Independence
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)
March 26, 2013
Review of Financial Studies 26(6), 1561-1605
ECGI - Finance Working Paper No. 315/2011
Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value and operating performance and CEO fraction of incentive based pay and turnover.
Number of Pages in PDF File: 61
Keywords: board of directors, board expertise, director labor market, location, firm value, firm performance, CEO compensation
JEL Classification: G30, G34
Date posted: August 4, 2011 ; Last revised: May 8, 2013
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