Long-Tenured Independent Directors and Firm Performance
Strategic Management Journal, Forthcoming
44 Pages Posted: 11 May 2017 Last revised: 15 Oct 2021
Date Written: September 15, 2021
Agency perspectives suggest long-tenured independent directors (LTIDs) may be cronies of the CEO, making their boards less effective, but we theorize that LTIDs may have particular expertise and motivation to improve board effectiveness and ultimately firm performance. We find strong support for this prediction using 15 years of data on the S&P 1,500 firms and an instrument based on director age at time of hire. We also find that an LTID adds more value to firms that are complex or mature, had more CEOs during the LTID’s tenure, and have less entrenched management. Post-hoc analyses of director deaths and shareholder class action lawsuits and activist motions provide additional evidence that LTIDs add value to the firms on whose boards they serve.
Keywords: Corporate governance, firm performance, boards, tenure
JEL Classification: G32, G38, M48
Suggested Citation: Suggested Citation