Powerful Independent Directors

55 Pages Posted: 17 Jan 2014 Last revised: 21 Sep 2015

See all articles by Kathy Fogel

Kathy Fogel

Suffolk University - Department of Finance

Liping Ma

University of Texas at Dallas; University of Arkansas

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: January 2014

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.

Suggested Citation

Fogel, Kathy and Ma, Liping and Ma, Liping and Morck, Randall K., Powerful Independent Directors (January 2014). NBER Working Paper No. w19809. Available at SSRN: https://ssrn.com/abstract=2380441

Kathy Fogel (Contact Author)

Suffolk University - Department of Finance ( email )

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

Liping Ma

University of Texas at Dallas ( email )

800 W Campbell Rd
Richardson, TX TX 75080-3021
United States

University of Arkansas ( email )

Fayetteville, AR 72701
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

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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