Inelastic Labor Market Supply and Directors’ Incentives
47 Pages Posted: 26 Jun 2017 Last revised: 12 Nov 2018
Date Written: August 7, 2018
We show that directors who lose a board seat are more likely to subsequently gain a seat on another board regardless of their performance at the departed board, suggesting potential supply constraints in the director labor market. Directors who possess skills that are in short supply are especially likely to substitute one board seat for another. We also find little evidence that poorly performing directors suffer a loss of prestige when they move between boards. Collectively, our evidence suggests that for many directors, limits on supply substantially mute their incentives to act in shareholders’ interests.
Keywords: Board of directors; director incentives; director monitoring; career concerns; free-rider problems; director labor market; principal-agent; corporate governance
JEL Classification: G34; J22
Suggested Citation: Suggested Citation