Independent Director Reputation Incentives: The Supply of Monitoring Services

61 Pages Posted: 24 Feb 2013 Last revised: 23 Aug 2017

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Shawn Mobbs

University of Alabama - Culverhouse College of Business Administration

Date Written: August 14, 2017

Abstract

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

Masulis, Ronald W. and Mobbs, Shawn, Independent Director Reputation Incentives: The Supply of Monitoring Services (August 14, 2017). ECGI - Finance Working Paper No. 353/2013. Available at SSRN: https://ssrn.com/abstract=2222783 or http://dx.doi.org/10.2139/ssrn.2222783

Ronald W. Masulis (Contact Author)

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

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

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

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

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Shawn Mobbs

University of Alabama - Culverhouse College of Business Administration ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

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