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Do Outside Directors with Government Experience Create Value?

Financial Management, Forthcoming

57 Pages Posted: 23 Jul 2012 Last revised: 5 Nov 2017

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Le Zhang

University of New South Wales (UNSW) - Australian School of Business; Financial Research Network (FIRN)

Date Written: July 30, 2017

Abstract

We examine whether outside directors with government experience add value to their firms. We find that government directors are more likely to miss board meetings and that their appointment announcements are greeted more negatively. Firms with government directors also experience poorer operating performance and more negative merger announcement returns, although their mergers are less likely to be challenged by antitrust authorities. These adverse valuation effects are largely alleviated when firms have large government sales, when they operate in regulated industries, or when government directors are politically connected. Using close gubernatorial election outcomes as a natural experiment and an instrumental variables approach to control for endogeneity bias does not change the results.

Keywords: Government director; Firm value; Endogeneity; Political connection.

JEL Classification: G14, G28, G34

Suggested Citation

Kang , Jun-Koo and Zhang, Le, Do Outside Directors with Government Experience Create Value? (July 30, 2017). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2115367 or http://dx.doi.org/10.2139/ssrn.2115367

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Le Zhang (Contact Author)

University of New South Wales (UNSW) - Australian School of Business ( email )

School of Banking and Finance
Australian School of Business, UNSW
Sydney, NSW 2052
Australia
+61 (2) 9385 4403 (Phone)
+61 (2) 9385 6347 (Fax)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/LeZhang.aspx

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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