On Long-Tenured Independent Directors
65 Pages Posted: 11 May 2017 Last revised: 5 Dec 2017
Date Written: December 1, 2017
Recent surveys show that 24% of independent directors in Russel 3,000 firms have continuously served on their boards for fifteen years or more. Based on a sample of S&P 1500 firms over the period 1998-2012, we document strong positive effects on financial performance for firms with one, very long-tenured independent director. We show that long-tenured independent directors are highly skilled individuals, and over time they accumulate information and knowledge valuable to the companies they serve in, even when the cost of acquiring information is high. long-tenured directors also decrease the likelihood of (1) corporate scandals, and (2) motions by hedge funds requiring changes in board composition. Our results are robust to several endogeneity tests including instrumental variable and dynamic regressions.
Keywords: Corporate Governance, Firm Value, Board of Directors, Tenure
JEL Classification: G32, G38, M48
Suggested Citation: Suggested Citation