Sugar and Spice and Everything Nice: What Are Independent Directors Made Of?
48 Pages Posted: 16 Mar 2012 Last revised: 5 May 2015
Date Written: April 30, 2015
We empirically analyze how outside directors and firms choose each other in a sample of 40,585 unique directors associated with 5,246 unique U.S. listed firm. We first provide stylized facts on outside directors and the successful ones. We find that gender, qualifications (MBA), work experience (especially S&P500 firm experience and CEO experience), social network size, experience on board committees, all impact the likelihood of becoming a successful director. Directors of large, complex, volatile and qualitatively reputable firms and of firms with higher levels of institutional ownership are also more likely to become successful directors. Being a member of a more independent board or obtaining the first directorship during a recession act against obtaining a second directorship. Second, we find that firms search for candidates for directorship from older, larger, more complex, more transparent, better governed, and well-performing companies. Third, we document and quantify the impact of five most important factors that determine the two-sided firm-director matching process, namely firm size, firm risk (return and operating performance volatility), stock performance, firm age, and institutional holdings. Overall, our evidence is informative for the workings of the labor market for outside directors.
Keywords: Board of directors, non-executive directors, corporate governance, career concerns, board composition
JEL Classification: G3, G28, G30, G34, G38, G34, J64
Suggested Citation: Suggested Citation