Directors’ Career Concerns: Evidence from Proxy Contests and Board Interlocks
71 Pages Posted: 18 Aug 2016 Last revised: 13 Nov 2018
Date Written: November 11, 2018
Proxy contests have a disciplinary effect on firms with board interlocks to the target firms. The interlocked firms make policy changes that reflect strengthened board monitoring - they decrease excess cash holding, increase shareholder payout, cut CEO compensation and reduce earnings management. The interlocking directors’ career concerns explain the findings. The policy improvements are more pronounced when both the interlocked firms and the target firms have a unitary board, when the interlocking directors are up for election at both firms, and when the interlocking directors are younger and have shorter tenure. The overall policy improvements alleviate the adverse career consequences that proxy contests impose on the directors.
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