Do Outside Directorships Influence CEO Decision Making? Evidence from Labor Strikes

AFA 2017 Chicago Meetings Paper

48 Pages Posted: 22 Dec 2016 Last revised: 25 Nov 2019

See all articles by Daniel Bias

Daniel Bias

Technische Universität München (TUM)

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics

Date Written: February 28, 2019

Abstract

CEO outside directorships are an important phenomenon; however, little is known about their influence on managerial decision making. We investigate how CEOs react after they observe, as a director of another firm, a labor strike that is plausibly exogenous to their firm. They increase cash holdings shortly afterwards, most likely due to an overreaction to the more salient strike risk. In the long run, CEOs adjust their labor negotiations. Consistent with observational learning, they offer higher wages during contract negotiations and manage to reduce strike risk. These results suggest that outside directorships can facilitate both behavioral biases and observational learning.

Keywords: Outside directorships, labor strikes, salience theory, observational learning, cash holdings

JEL Classification: D80, G31, G34, J52

Suggested Citation

Bias, Daniel and Schmid, Thomas, Do Outside Directorships Influence CEO Decision Making? Evidence from Labor Strikes (February 28, 2019). AFA 2017 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2888378 or http://dx.doi.org/10.2139/ssrn.2888378

Daniel Bias (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
169
Abstract Views
844
rank
185,516
PlumX Metrics