From Backroom to Boardroom: Role of Government Directors in U.S. Public Firms and Their Impact on Performance

61 Pages Posted: 23 Jul 2012 Last revised: 10 Jan 2015

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: January 9, 2015

Abstract

We examine the role of government directors (outside directors with government experience) on corporate boards. We find that government directors are more likely to miss board meetings and announcements of their appointments are greeted more negatively. We also find that unlike other outside directors, their board presence does not affect the sensitivity of CEO turnover to performance. In addition, firms with government directors experience weaker operating performance and more negative merger announcement returns. However, these firms pay less tax and their mergers are less likely to be challenged by antitrust authorities. Using an instrumental variables approach to control for endogeneity bias does not change the results. We further find that the adverse effects of government directors are largely alleviated when firms have high government sales, operate in regulated industries, or have politically connected government directors.

Keywords: Government director; CEO turnover; Monitoring; Advising; Firm value; Endogeneity

JEL Classification: G14, G28, G34

Suggested Citation

Kang , Jun-Koo and Zhang, Le, From Backroom to Boardroom: Role of Government Directors in U.S. Public Firms and Their Impact on Performance (January 9, 2015). 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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