Powerful Independent Directors

55 Pages Posted: 11 Jan 2014 Last revised: 20 Jan 2022

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 Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 4, 2021

Abstract

Shareholder valuations are economically and statistically positively correlated with independent director power, gauged by a composite of social network power centrality measures. Powerful independent directors’ sudden deaths reduce shareholder value significantly; other independent directors’ deaths do not, consistent with powerful independent directors increasing firm valuations. 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 interpret these findings as more powerful independent directors better detecting and countering CEO missteps because of better access to information, greater credibility in challenging errant top managers, or both.

Keywords: CORPORATE GOVERNANCE, DIRECTOR INDEPENDENCE, MILGRAM EXPERIMENT, 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 (March 4, 2021). 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 Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,375
Abstract Views
9,395
rank
20,090
PlumX Metrics