Advisory Directors

52 Pages Posted: 17 Jun 2011 Last revised: 21 Feb 2013

See all articles by Olubunmi Faleye

Olubunmi Faleye

Northeastern University - Finance Group

Rani Hoitash

Bentley University - Department of Accountancy

Udi Hoitash

Northeastern University - Accounting Group

Date Written: February 14, 2013

Abstract

We propose a measure of the advising capacity of corporate boards that focuses on the distribution of committee assignments. We then study the characteristics and impact of directors dedicated to providing strategic counsel to top management. We find that advisory directors possess professional expertise and experience most valuable to the CEO in strategic decision making: entrepreneurial background, CEO-level experience, advanced degrees, and longer board tenures. We also find that these directors are associated with better strategic outcomes. Acquisition returns are higher at companies with advisory directors while time to deal completion is shorter. Similarly, advisory directors are associated with increased and better-quality corporate innovation and higher firm value. The value effect is stronger when advising needs are high and when the CEO is less powerful and thus more amenable to board influence on strategy. We do not find that advisory directors diminish the effectiveness of board monitoring.

Keywords: board advising, board committees, mergers and acquisitions, corporate innovation, firm value

JEL Classification: G34

Suggested Citation

Faleye, Olubunmi and Hoitash, Rani and Hoitash, Udi, Advisory Directors (February 14, 2013). Available at SSRN: https://ssrn.com/abstract=1866166 or http://dx.doi.org/10.2139/ssrn.1866166

Olubunmi Faleye (Contact Author)

Northeastern University - Finance Group ( email )

Boston, MA 02115
United States

Rani Hoitash

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

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