How Much Do Directors Influence Firm Value?

Forthcoming in: Review of Financial Studies

43 Pages Posted: 5 Jun 2015 Last revised: 11 Jan 2019

See all articles by Aaron Burt

Aaron Burt

University of Oklahoma - Division of Finance

Christopher M. Hrdlicka

University of Washington - Michael G. Foster School of Business

Jarrad Harford

University of Washington

Date Written: December 11, 2018

Abstract

The value a director provides to a firm is empirically hard to establish. We estimate that value by exploiting the commonality in idiosyncratic returns of firms linked by a director and show that, on average, a single director's influence causes variation in firm value of almost 1% per year. The return commonality is not due to industry or other observable economic links. Variation in the availability of information on shared directors and a placebo test exploiting the timing of shared directors provide further identification. The results also imply that the directorial labor market does not fully assess directors in real time.

Keywords: director influence, connected boards, price discovery, economic links, return predictability, information diffusion, market efficiency, investor inattention, limits to arbitrage, lead-lag effect, networks, boards of directors

JEL Classification: G10, G12, G14, G30

Suggested Citation

Burt, Aaron Paul and Hrdlicka, Christopher M. and Harford, Jarrad, How Much Do Directors Influence Firm Value? (December 11, 2018). Forthcoming in: Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=2614239 or http://dx.doi.org/10.2139/ssrn.2614239

Aaron Paul Burt

University of Oklahoma - Division of Finance ( email )

Norman, OK 73019
United States

HOME PAGE: http://sites.google.com/sites/aaronburt

Christopher M. Hrdlicka (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195
United States
206.616.0332 (Phone)
206.542.7472 (Fax)

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

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