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On Long-Tenured Independent Directors

60 Pages Posted: 11 May 2017  

Stefano Bonini

Stevens Institute of Technology - School of Business

Justin Deng

New York University (NYU), Leonard N. Stern School of Business, Department of Accounting

Mascia Ferrari

New York University (NYU)

Kose John

New York University (NYU) - Department of Finance

Date Written: May 8, 2017

Abstract

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

Bonini, Stefano and Deng, Justin and Ferrari, Mascia and John, Kose, On Long-Tenured Independent Directors (May 8, 2017). Available at SSRN: https://ssrn.com/abstract=2965588 or http://dx.doi.org/10.2139/ssrn.2965588

Stefano Bonini (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Justin Deng

New York University (NYU), Leonard N. Stern School of Business, Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

Mascia Ferrari

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

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