Director Alpha: An Objective Measure of Director Contribution

32 Pages Posted: 23 Jul 2011

See all articles by Waquar Ahmad

Waquar Ahmad

Drexel University - Bennett S. LeBow College of Business

Jacqueline L. Garner

Georgia Institute of Technology - Scheller College of Business

Adam S. Yore

University of Missouri at Columbia - Department of Finance

Date Written: July 22, 2011

Abstract

The appointment of contributing directors is associated with immediate positive market reaction, and the presence of contributing directors in the board enhances long-run firm value. We identify the contribution of directors by alpha, or the abnormal risk-adjusted stock returns that are generated in other firms on whose boards they sit. We find that investors react positively when high alpha directors are appointed to high alpha boards. CEOs and individuals with MBA or CPA designations are more likely to be contributing directors. We find that high alpha directors contribute significantly to firm value. For the typical firm, our parameter estimates imply that replacing a negative alpha director with a positive one is associated with a 1.8% improvement in firm value.

Keywords: Director Alpha, Board Alpha, Director Quality, Director Appointments

JEL Classification: G14, G34

Suggested Citation

Ahmad, Waquar and Garner, Jacqueline L. and Yore, Adam S., Director Alpha: An Objective Measure of Director Contribution (July 22, 2011). Available at SSRN: https://ssrn.com/abstract=1892928 or http://dx.doi.org/10.2139/ssrn.1892928

Waquar Ahmad

Drexel University - Bennett S. LeBow College of Business ( email )

101 N. 33rd St.
Philadelphia, PA 19104
United States

Jacqueline L. Garner (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Adam S. Yore

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-884-1446 (Phone)

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