Effects of Local Director Markets on Corporate Boards
83 Pages Posted: 16 Mar 2011
Date Written: February 1, 2011
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. Proximity to local pools of prospective directors with specialized expertise – academic, legal, financial, or technological – is associated with greater representation of such directors on corporate board. Further, firms located close to academic institutions attract more directors with advanced degrees. In a similar spirit, 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
JEL Classification: G30, G34
Suggested Citation: Suggested Citation