Abstract

http://ssrn.com/abstract=2302917
 


 



Zombie Boards: Board Tenure and Firm Performance


Sterling Huang


INSEAD - Finance; Singapore Management University - School of Accountancy

July 29, 2013


Abstract:     
In this paper I show that board tenure exhibits an inverted U-shaped relation with firm value. The value and quality of corporate decisions such as M&A, financial reporting, CEO compensation and replacement, and innovation also depend non-linearly on board tenure. The results are consistent with directors’ on-the-job learning improving firm value up to some threshold, at which point entrenchment dominates and firm value suffers. The paper further shows that the inverted U-shaped relation remains even when holding board composition constant, suggesting that the benefits and costs of learning and entrenchment (above and beyond those driven by changes in board composition) change over time and hence affect firm decisions and performance. To address endogeneity concerns, I use a sample of sudden deaths of outside directors and find that sudden deaths that move board tenure away from (toward) the empirically observed maximum are associated with a negative (positive) announcement return.

Number of Pages in PDF File: 67

Keywords: Board Tenure, Firm Value, Corporate Policies, Learning, Entrenchment

JEL Classification: G30, G32, G34, G38

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Date posted: July 30, 2013  

Suggested Citation

Huang, Sterling, Zombie Boards: Board Tenure and Firm Performance (July 29, 2013). Available at SSRN: http://ssrn.com/abstract=2302917 or http://dx.doi.org/10.2139/ssrn.2302917

Contact Information

Sterling Huang (Contact Author)
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France

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Singapore Management University - School of Accountancy ( email )
60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

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