Do Independent Director Departures Predict Future Bad Events?
Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute
Nanyang Technological University - Division of Banking & Finance
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
December 17, 2015
Fisher College of Business Working Paper No. 2010-03-007
Charles A. Dice Center Working Paper No. 2010-7
Swiss Finance Institute Research Paper No. 10-17
ECGI - Finance Working Paper No. 281/2010
Following surprise independent director departures, affected firms have worse stock and operating performance, are more likely to restate earnings, face shareholder litigation, suffer from an extreme negative return event, and make worse mergers and acquisitions. The announcement returns to surprise director departures are negative, suggesting that the market infers bad news from surprise departures. We use exogenous variation in independent director departures triggered by director deaths to test whether surprise independent director departures cause these negative outcomes or whether an anticipation of negative outcomes is responsible for the surprise director departure. Our evidence is more consistent with the latter.
Number of Pages in PDF File: 52
Keywords: Director departures, reputational concerns, director monitoring
JEL Classification: G30, G34
Date posted: April 12, 2010 ; Last revised: December 18, 2015