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Is Director Industry Experience Valuable?

47 Pages Posted: 4 May 2012 Last revised: 10 Oct 2015

Felix von Meyerinck

University of St. Gallen - School of Finance

David Oesch

University of Zurich

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Date Written: September 15, 2015

Abstract

We investigate whether investor reactions to the announcement of a new outside director appointment significantly depend upon the director’s experience in the appointing firm’s industry. Our sample includes 688 outside director appointments to boards of S&P 500 companies from 2005 to 2010. We find significantly higher announcement returns upon appointments of experienced versus inexperienced directors. To alleviate endogeneity concerns, we use the deaths of 200 directors holding 280 outside directorships as an identification strategy and find significantly more negative announcement returns associated with the deaths of experienced versus inexperienced directors. However, while our results are robust to accounting for time-fixed unobservable director and firm characteristics, we still cannot completely rule out endogenous firm-director matching driving our results.

Keywords: Board of directors, Director appointments, Director deaths, Director skills and experience, Corporate governance

JEL Classification: G32, G34

Suggested Citation

von Meyerinck, Felix and Oesch, David and Schmid, Markus, Is Director Industry Experience Valuable? (September 15, 2015). Available at SSRN: https://ssrn.com/abstract=2051063 or http://dx.doi.org/10.2139/ssrn.2051063

Felix Von Meyerinck

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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