How Valuable are Independent Directors? Evidence from External Distractions
74 Pages Posted: 2 Aug 2016 Last revised: 30 Sep 2018
Date Written: May 5, 2018
We provide new evidence on the value of independent directors by exploiting exogenous events that seriously distract independent directors. Approximately 20% of independent directors are significantly distracted in a typical year. They attend fewer meetings, trade less frequently in the firm’s stock and resign from the board more frequently, indicating declining firm-specific knowledge and a reduced board commitment. Firms with more preoccupied independent directors have declining firm valuation and operating performance and exhibit weaker M&A profitability and accounting quality. These effects are stronger when distracted independent directors play key board monitoring roles and when firms require greater director attention.
Keywords: Independent Directors, Director Incentives, Director Distraction, Corporate Performance
JEL Classification: G30, G34
Suggested Citation: Suggested Citation