58 Pages Posted: 29 Jun 2016 Last revised: 31 Aug 2016
Date Written: June 1, 2016
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: Suggested Citation