The Supply of Corporate Directors and Board Independence

Review of Financial Studies 26(6), 1561-1605

ECGI - Finance Working Paper No. 315/2011

61 Pages Posted: 4 Aug 2011 Last revised: 8 May 2013

Anzhela Knyazeva

U.S. Securities and Exchange Commission

Diana Knyazeva

U.S. Securities and Exchange Commission (SEC)

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Multiple version iconThere are 3 versions of this paper

Date Written: March 26, 2013

Abstract

Empirical evidence on the relations between board independence and board decisions and firm performance is generally confounded by serious endogeneity issues. We circumvent these endogeneity problems by demonstrating the strong impact of the local director labor market on board composition. Specifically, we show that proximity to larger pools of local director talent leads to more independent boards for all but the largest quartile of S&P1500. Using local director pools as an instrument for board independence, we document that board independence has a positive effect on firm value and operating performance and CEO fraction of incentive based pay and turnover.

Keywords: board of directors, board expertise, director labor market, location, firm value, firm performance, CEO compensation

JEL Classification: G30, G34

Suggested Citation

Knyazeva, Anzhela and Knyazeva, Diana and Masulis, Ronald W., The Supply of Corporate Directors and Board Independence (March 26, 2013). Review of Financial Studies 26(6), 1561-1605; ECGI - Finance Working Paper No. 315/2011. Available at SSRN: https://ssrn.com/abstract=1904730 or http://dx.doi.org/10.2139/ssrn.1904730

Anzhela Knyazeva (Contact Author)

U.S. Securities and Exchange Commission ( email )

United States

Diana Knyazeva

U.S. Securities and Exchange Commission (SEC) ( email )

100 F Street NE
Washington, DC 20549-1105
United States
(202) 551-7989 (Phone)

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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1 Business Link
Singapore, 117592
Singapore

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