Rookie Directors

58 Pages Posted: 29 Jun 2016 Last revised: 31 Aug 2016

See all articles by Jun-Koo Kang

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Jungmin Kim

School of Accounting and Finance, Hong Kong Polytechnic University

Angie Low

Nanyang Technological University - Division of Banking & Finance

Date Written: June 1, 2016

Abstract

We find that firms appointing first-time independent directors experience an increase in firm value, especially among firms with well-functioning boards, firms with less powerful CEOs, and non-complex firms. Unlike seasoned independent directors, first-time directors are associated with higher CEO turnover-performance (pay-performance) sensitivity but lower innovation output, suggesting that they add value through improved monitoring. The positive valuation effects of first-timers concentrate in the first three years of their directorships and these directors at better-performing firms gain more board seats after their first appointment. Thus, first-timers work hard to establish their reputation initially but such an incentive declines over time.

Keywords: Unseasoned independent directors, Directorial labor market, Career concerns, Monitoring and advisory role, Firm value, CEO turnover, CEO compensation, Innovation

JEL Classification: G32, G34, J4

Suggested Citation

Kang, Jun-Koo and Kim, Jungmin and Low, Angie, Rookie Directors (June 1, 2016). Available at SSRN: https://ssrn.com/abstract=2800853 or http://dx.doi.org/10.2139/ssrn.2800853

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Jungmin Kim (Contact Author)

School of Accounting and Finance, Hong Kong Polytechnic University ( email )

M757 Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
852 2766 7061 (Phone)

Angie Low

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

Singapore, 639798
Singapore

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