Inelastic Labor Market Supply and Directors’ Incentives

47 Pages Posted: 26 Jun 2017 Last revised: 12 Nov 2018

See all articles by Chris Armstrong

Chris Armstrong

University of Pennsylvania - Accounting Department

John D. Kepler

Stanford Graduate School of Business

David Tsui

University of Southern California - Marshall School of Business

Date Written: August 7, 2018

Abstract

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

Armstrong, Chris S. and Kepler, John and Tsui, David, Inelastic Labor Market Supply and Directors’ Incentives (August 7, 2018). Available at SSRN: https://ssrn.com/abstract=2991624 or http://dx.doi.org/10.2139/ssrn.2991624

Chris S. Armstrong (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

John Kepler

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

David Tsui

University of Southern California - Marshall School of Business ( email )

3660 Trousdale Parkway
Los Angeles, CA 90089
United States

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