Independent Director Reputation Incentives: The Supply of Monitoring Services
61 Pages Posted: 24 Feb 2013 Last revised: 23 Aug 2017
Date Written: August 14, 2017
Extensive research finds that shareholder and CEO preferences affect demand for director services. We find a large body of evidence that independent director reputation incentives influence the supply of director services. These reputation incentives vary across firms and over time, significantly influencing important board decisions and firm outcomes. When more independent directors highly rank a directorship, firms experience fewer actions that hurt and more actions that enhance shareholder wealth and director reputation. These results are invariant to endogeneity adjustments. We conclude that director reputation affects board decisions and shareholder value by influencing director allocation of effort across their multiple directorships.
Keywords: independent director, reputations incentives, board decisions, director labor market, option grants, dividends, class-action lawsuits, covenant violations, stock repurchases, exchange delistings
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation