Fisher College of Business Working Paper No. 2010-03-007
52 Pages Posted: 12 Apr 2010 Last revised: 18 Dec 2015
Date Written: December 17, 2015
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: 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