The Impact of Director Heterogeneity on Corporate Restructuring Patterns: Beyond Insider/Outsider Duality

Abstract:     
This article uses the large US freight railroads, forced to restructure after deregulation due to competitive pressures, as field experiment to study the impact that board composition can have on corporate restructuring activities. In particular, it investigates the effect of director heterogeneity on the nature of restructuring measures by examining a unique firm-level panel of US freight railroads data covering a twenty-year period. While most of the existing empirical research investigating the impact of board composition on specific corporate decisions focuses on the distinction between independent and non-independent directors as main source of director heterogeneity, this article goes beyond this approach and conducts a more fine-grained analysis by classifying directors into categories that seek to better reflect board diversity. CEO characteristics and exogenous environmental characteristics are also taken into account. Overall results indicate that both board composition and CEO characteristics affect corporate restructuring patterns. Results show that there are significant differences in the way directors influence restructuring decisions depending upon their background and stakeholder condition. These findings suggest that boards' diversity matters for the understanding of corporate behavior. They point to the importance of integrating into board research measures of board composition reflecting the potential diversity of interests.

Number of Pages in PDF File: 34

Keywords: defensive and strategic restructuring, downsizing, corporate governance, director heterogeneity, CEO characteristics, panel data

JEL Classification: C23, G34, L20, L 92

working papers series