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http://ssrn.com/abstract=2200552
 
 

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Do Outside Directors Face Labor Market Consequences? A Natural Experiment from the Financial Crisis


Steven M. Davidoff


Ohio State University (OSU) - Michael E. Moritz College of Law; Ohio State University (OSU) - Department of Finance

Andrew Lund


Pace University School of Law

Robert J. Schonlau


Brigham Young University - Department of Finance

September 16, 2013

Harvard Business Law Review (Forthcoming)

Abstract:     
The exogenous shock of the financial crisis made shareholders and regulators particularly attuned to financial firm performance. We thus use the financial crisis as a natural experiment to study labor market consequences for outside directors at banks and other financial companies. Examining 6,507 director years at bank and financial companies over the period from 2006 to 2010 we find that outside director turnover at financial firms is negatively correlated to lagged variables for stock returns. However, the increased chance of being replaced for poor performance is only 0.99% for a one standard deviation change in performance compared to 0.59% at non-financial firms, in either case an arguably trivial amount. We also find limited evidence of salience with respect to the financial crisis. We draw on these empirical findings to assess current board-centered responses to the financial crisis and their failings.

Number of Pages in PDF File: 35

Keywords: board of directors, financial institutions, financial crisis, labor market for directors, board turnover, corporate governance, outside directors

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Date posted: January 14, 2013 ; Last revised: September 17, 2013

Suggested Citation

Davidoff, Steven M. and Lund, Andrew and Schonlau, Robert J., Do Outside Directors Face Labor Market Consequences? A Natural Experiment from the Financial Crisis (September 16, 2013). Harvard Business Law Review (Forthcoming). Available at SSRN: http://ssrn.com/abstract=2200552 or http://dx.doi.org/10.2139/ssrn.2200552

Contact Information

Steven M. Davidoff (Contact Author)
Ohio State University (OSU) - Michael E. Moritz College of Law ( email )
55 West 12th Avenue
Columbus, OH 43210
United States
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

Andrew Lund
Pace University School of Law ( email )
78 North Broadway
White Plains, NY 10603
United States
Robert J. Schonlau
Brigham Young University - Department of Finance ( email )
Marriott School of Management
682 TNRB
Provo, UT 84602
United States
801-422-5879 (Phone)
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