Zombie Boards: Board Tenure and Firm Performance

Posted: 30 Jul 2013 Last revised: 3 Jul 2018

See all articles by Sterling Huang

Sterling Huang

Singapore Management University - School of Accountancy

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Date Written: March 16, 2018

Abstract

We show that board tenure exhibits an inverted U-shaped relation with firm value and accounting performance. The quality of corporate decisions, such as M&A, financial reporting quality, and CEO compensation, also has a quadratic relation with board tenure. Our results are consistent with the interpretation that directors’ on-the-job learning improves firm value up to a threshold, at which point entrenchment dominates and firm performance suffers. To address endogeneity concerns, we use a sample of firms in which an outside director suffered a sudden death, and find that sudden deaths that move board tenure away from (toward) the empirically observed optimum level in the cross-section are associated with negative (positive) announcement returns. The quality of corporate decisions also follows an inverted U-shaped pattern in a sample of firms affected by the death of a director.

Keywords: Board Tenure, Firm Value, Corporate Policies, Learning, Entrenchment

JEL Classification: G30, G32, G34, G38, J33, J44, M41

Suggested Citation

Huang, Sterling and Hilary, Gilles, Zombie Boards: Board Tenure and Firm Performance (March 16, 2018). Journal of Accounting Research, Forthcoming; Singapore Management University School of Accountancy Research Paper No. 2018-82. Available at SSRN: https://ssrn.com/abstract=2302917 or http://dx.doi.org/10.2139/ssrn.2302917

Sterling Huang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

Gilles Hilary

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
7,320
PlumX Metrics