Sugar and Spice and Everything Nice: What Are Independent Directors Made Of?

48 Pages Posted: 16 Mar 2012 Last revised: 5 May 2015

See all articles by Quoc-Anh Do

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Bang Dang Nguyen

University of Cambridge Judge Business School

P. Raghavendra Rau

University of Cambridge

Date Written: April 30, 2015

Abstract

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

Do, Quoc-Anh and Nguyen, Bang Dang and Rau, P. Raghavendra, Sugar and Spice and Everything Nice: What Are Independent Directors Made Of? (April 30, 2015). Available at SSRN: https://ssrn.com/abstract=2023087 or http://dx.doi.org/10.2139/ssrn.2023087

Quoc-Anh Do

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bang Dang Nguyen (Contact Author)

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

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