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Local Director Talent and Board Composition

Posted: 7 Aug 2009 Last revised: 29 Jan 2010

Anzhela Knyazeva

U.S. Securities and Exchange Commission

Diana Knyazeva

U.S. Securities and Exchange Commission (SEC)

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Date Written: November 11, 2009

Abstract

This study explores the effects of local director labor markets near firm headquarters locations on board structure. We examine whether firms are able to attract more independent directors to their boards when a larger pool of prospective directors (officers and directors of other firms, financial institutions and universities) is located near the firm. Empirically, firms located near large pools of prospective directors have a larger percentage of independent directors and directors with executive expertise on their boards. Firms located closer to financial institutions and universities attract a larger percentage of directors with financial and academic expertise, respectively. The effects of local director labor markets on board composition is concentrated among firms with lower visibility and firms that benefit more from specific knowledge. Following 2002 governance reforms, we find that firms have increasingly expanded their search for independent directors beyond local labor markets. We use our findings on director labor market determinants of board composition to reexamine the relation between board independence and firm value.

Keywords: board of directors, director labor market, location, firm value

JEL Classification: G30, G34

Suggested Citation

Knyazeva, Anzhela and Knyazeva, Diana and Masulis, Ronald W., Local Director Talent and Board Composition (November 11, 2009). Available at SSRN: https://ssrn.com/abstract=1443523 or http://dx.doi.org/10.2139/ssrn.1443523

Anzhela Knyazeva (Contact Author)

U.S. Securities and Exchange Commission ( email )

United States

Diana Knyazeva

U.S. Securities and Exchange Commission (SEC) ( email )

100 F Street NE
Washington, DC 20549-1105
United States
(202) 551-7989 (Phone)

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

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