Jeffrey L. Coles
David Eccles School of Business, University of Utah; Arizona State University (ASU) - Finance Department
Naveen D. Daniel
Drexel University - Department of Finance
February 9, 2012
While the fraction of independent directors has been widely used as a proxy for monitoring effectiveness of the board, there are no clear-cut measures that capture the advising effectiveness of the board. We develop and validate two new measures of board advising: (i) per-outside-director advising quality; and (ii) aggregate board advising capability. These measures, which are based on connections of outside directors to directors on other boards, offer the advantage of being easy to compute from readily available data. We find that as firm demand for advising, as measured by firm complexity, increases: (i) both advising quality and total advising increase; and (ii) the sensitivity of firm value to both advising quality and total advising increase.
Number of Pages in PDF File: 41
Keywords: board advising, advising quality, directors, board characteristics, Corporate Governance, firm complexity
JEL Classification: G32, G34, K22working papers series
Date posted: March 14, 2012 ; Last revised: April 22, 2014
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