Do Independent Director Departures Predict Future Bad Events?

52 Pages Posted: 12 Apr 2010 Last revised: 18 Dec 2015

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Angie Low

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)

Multiple version iconThere are 3 versions of this paper

Date Written: December 17, 2015

Abstract

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.

Keywords: Director departures, reputational concerns, director monitoring

JEL Classification: G30, G34

Suggested Citation

Fahlenbrach, Rüdiger and Low, Angie and Stulz, René M., Do Independent Director Departures Predict Future Bad Events? (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. Available at SSRN: https://ssrn.com/abstract=1585192 or http://dx.doi.org/10.2139/ssrn.1585192

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)

HOME PAGE: http://sfi.epfl.ch/fahlenbrach.html

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Angie Low

Nanyang Technological University - Division of Banking & Finance ( email )

Singapore, 639798
Singapore

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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

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