Director Attention and Firm Value
44 Pages Posted: 22 Jun 2017 Last revised: 12 Nov 2018
Date Written: November 12, 2018
Abstract
This paper shows that exogenous director distraction affects board monitoring intensity and leads to a higher level of inactivity by management. We construct a firm-level director "distraction'' measure by exploiting shocks to unrelated industries in which directors have additional directorships. Directors attend significantly fewer board meetings when they are distracted. Firms with distracted board members tend to be inactive and experience a significant decline in firm value. Overall, this paper highlights the impact of limited director attention on the effectiveness of corporate governance and the importance of directors in keeping management active.
Keywords: director attention, firm value, busy board, corporate governance
JEL Classification: G02, G34
Suggested Citation: Suggested Citation