Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance

Financial Management, Forthcoming

52 Pages Posted: 23 Jun 2012 Last revised: 6 Aug 2015

See all articles by Ying Dou

Ying Dou

Monash University

Sidharth Sahgal

University of New South Wales (UNSW)

Emma Jincheng Zhang

Monash University

Date Written: February 27, 2015

Abstract

Using a sample of S&P 1500 firms from 1998-2013, we examine the role of independent directors with extended tenures in board-level governance, monitoring decisions, and advising outcomes. We document a higher level of commitment among these directors as they are more likely to attend board meetings and also become members of board committees. Firms with a higher proportion of directors with extended tenures have lower CEO pay, higher CEO turnover-performance sensitivity, and a smaller likelihood of intentionally misreporting earnings. These firms also restrict the expansion of resources under the CEO’s control as they are less likely to make acquisitions, while the acquisitions that are made are of higher quality. Efforts to impose term limits may, therefore, be misguided.

Keywords: Board of directors, Director tenure, CEO Compensation, Mergers and Acqusitions, CEO Turnover, Dividend Payout Policy, Director Turnover

JEL Classification: G34

Suggested Citation

Dou, Ying and Sahgal, Sidharth and Zhang, Emma Jincheng, Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance (February 27, 2015). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2089175 or http://dx.doi.org/10.2139/ssrn.2089175

Ying Dou (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Sidharth Sahgal

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Emma Jincheng Zhang

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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