Do Independent Director Departures Predict Future Bad Events?

57 Pages Posted: 19 Mar 2016

See all articles by Rüdiger Fahlenbrach

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Angie Low

Nanyang Technological University - Division of Banking & Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2015

Abstract

Following surprise independent director departures, affected firms have worse stock and operating performance, are more likely to restate earnings, face shareholder litigation, suffer from an extreme negative return event, and make worse mergers and acquisitions. The announcement returns to surprise director departures are negative, suggesting that the market infers bad news from surprise departures. We use exogenous variation in independent director departures triggered by director deaths to test whether surprise independent director departures cause these negative outcomes or whether an anticipation of negative outcomes is responsible for the surprise director departure. Our evidence is more consistent with the latter.

Keywords: Director departures, reputational concerns, director monitoring

JEL Classification: G30, G34

Suggested Citation

Fahlenbrach, Rüdiger and Low, Angie and Stulz, Rene M., Do Independent Director Departures Predict Future Bad Events? (December 1, 2015). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 281/2010, Available at SSRN: https://ssrn.com/abstract=2712291 or http://dx.doi.org/10.2139/ssrn.2712291

Rüdiger Fahlenbrach (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

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HOME PAGE: http://https://www.epfl.ch/labs/sfi-rf/

Swiss Finance Institute

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Angie Low

Nanyang Technological University - Division of Banking & Finance ( email )

Singapore, 639798
Singapore

Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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