The Benefits of Focus vs. Heterogeneity: Dissimilar Directors and Coordination within Corporate Boards
56 Pages Posted: 13 Jun 2012 Last revised: 20 Jul 2013
Date Written: May 1, 2013
We examine dispersion in director characteristics within a board. Directors with different skills can augment the board’s overall expertise and decision making flexibility, but they also face coordination problems. Empirically, the negative effect of dispersion on value prevails. To establish causality, we exploit external constraints that prompt firms to deviate from optimal board dispersion levels, conduct an acquisition event study, and examine market reaction to dispersion changes following director appointments, departures and deaths. Firms with disperse boards experience adverse market reaction to acquisitions. Growth firms experience a negative reaction to dispersion increases. Board dispersion also affects value relevant firm decisions.
Keywords: boards of directors, coordination problems, director characteristics, shareholder value
JEL Classification: G30, G34
Suggested Citation: Suggested Citation