Powerful Independent Directors

61 Pages Posted: 11 Jan 2014 Last revised: 11 Sep 2015

See all articles by Kathy Fogel

Kathy Fogel

Suffolk University - Department of Finance

Liping Ma

University of Texas at Dallas - Naveen Jindal School of Management

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2015

Abstract

Shareholder valuations are economically and statistically positively correlated with independent directors’ power, gauged by social network power centrality. Powerful independent directors’ sudden deaths reduce shareholder value significantly; other independent directors’ deaths do not. More powerful independent directors Granger cause higher valuations; the converse is not true. Further tests associate more powerful independent directors with less value-destroying M&A, less free cash flow retention, more CEO accountability, and less earnings management. We posit that more powerful independent directors better detect and counter CEO missteps because of better access to information, greater credibility in challenging errant top managers, or both.

Keywords: Corporate Governance, Director Independence, Agency Problem, Social Networks, Power Centrality, Behavioral Finance

JEL Classification: G34, G38, G02, D85, K22, L2, M12, Z13

Suggested Citation

Fogel, Kathy and Ma, Liping and Morck, Randall K., Powerful Independent Directors (September 2, 2015). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 404/2014. Available at SSRN: https://ssrn.com/abstract=2377106 or http://dx.doi.org/10.2139/ssrn.2377106

Kathy Fogel

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States

Liping Ma

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

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

Asian Bureau of Finance and Economic Research ( email )

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

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