Is Director Industry Experience Valuable?
47 Pages Posted: 4 May 2012 Last revised: 10 Oct 2015
Date Written: September 15, 2015
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: Suggested Citation