The Benefits of Focus vs. Heterogeneity: Dissimilar Directors and Coordination within Corporate Boards

56 Pages Posted: 13 Jun 2012 Last revised: 20 Jul 2013

See all articles by Anzhela Knyazeva

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Diana Knyazeva

Independent

Charu G. Raheja

Wake Forest University

Date Written: May 1, 2013

Abstract

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

Knyazeva, Anzhela and Knyazeva, Diana and Raheja, Charu G., The Benefits of Focus vs. Heterogeneity: Dissimilar Directors and Coordination within Corporate Boards (May 1, 2013). Available at SSRN: https://ssrn.com/abstract=2083287 or http://dx.doi.org/10.2139/ssrn.2083287

Anzhela Knyazeva (Contact Author)

Independent ( email )

No Address Available

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Diana Knyazeva

Independent ( email )

No Address Available

Charu G. Raheja

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7659
United States

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