Director Appointments – It is Who You Know
56 Pages Posted: 18 Mar 2017 Last revised: 14 Jul 2017
Date Written: March 15, 2017
Corporate directors almost always run unopposed and are elected; yet shareholders have little if any say in their nomination or removal. Particularly controversial is the appointment of directors connected to the incumbent board. Connected directors could perpetuate cronyism, but could also reduce uncertainty and coordination costs of boardroom assimilation. Using 9,923 director appointments during 2003-2014, we document the dramatic impact of connections. Consistent with facilitating coordination, more complex firms and firms in more competitive environments are more likely to appoint connected directors. Such appointments receive better market reactions and higher shareholder votes. We also document limited evidence on agency motivations.
Keywords: Director Appointments, Social Network, Coordination, Agency, Shareholder Vote
JEL Classification: G34
Suggested Citation: Suggested Citation