Does Independent Directors’ CEO Experience Matter?
Review of Finance, Forthcoming
60 Pages Posted: 3 Dec 2012 Last revised: 15 Apr 2017
Date Written: March 31, 2017
Abstract
We find the confluence of CEO-same industry experience makes independent directors particularly helpful in enhancing value-added growth and we identify a channel: guidance toward higher valued-added R&D investments and higher quality innovations. Further corroborating these inferences, we find greater improvement in value-added growth when (1) independent directors with industry-CEO experience (IDICEs) have experience in more similar industries; (2) they create more shareholder value as CEO; and (3) they are current CEOs. In addition, IDICEs contribute to value-added growth most when firm environments and characteristics are conducive for active board-management interaction; namely, when product markets are more competitive and dynamic, when outsiders can more easily acquire firm-specific information, and when firms are younger and smaller. Consistent with our inferences on how IDICEs contribute to value-added growth, firms growing faster, less successfully innovating, and/or under strong governance tend to be matched with IDICEs.
Keywords: Industry-CEO Experience, Board Advising, Value-added Growth, Innovations, R&D Investments
JEL Classification: G34
Suggested Citation: Suggested Citation
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