Mechanisms of Board Turnover: Evidence from Backdating

Abstract:     
We analyze board turnover of firms implicated in stock-option backdating to assess the effectiveness of board elections. Our evidence suggests that despite high reelection rates, board turnover among nominated directors is substantial and thus reelection rates are of limited value in assessing the effectiveness of shareholder voting. Independent and management directors depart boards though different mechanisms: independent directors primarily are not renominated, while management directors generally resign. Critically, each of these decisions is affected by the anticipated outcome of a potential shareholder vote. We also find that directors who are named as responsible for backdating experience net reductions in both the quality and quantity of their board seats.

Number of Pages in PDF File: 37

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