Local Director Talent and Board Composition
74 Pages Posted: 15 Jul 2010 Last revised: 25 Mar 2013
Date Written: November 10, 2010
This study explores the effects of local director labor markets on the board structure of nearby firms. 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’s headquarters. Empirically, firms close to large pools of prospective directors have more independent boards and more independent directors with executive expertise. Moreover, proximity to a larger pool of directors with technology and R&D experience is associated with more directors with such specialized expertise on the firm’s board. Further, firms located close to financial institutions and universities attract more directors with financial and academic expertise, respectively. Similarly, firms are able to hire more independent directors whose past experience matches the firm’s growth options if a larger local pool of such directors is available. Finally, 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: Suggested Citation