Board Structure, Director Expertise, and Advisory Role of Outside Directors
66 Pages Posted: 24 Feb 2018 Last revised: 13 Nov 2019
Date Written: October 21, 2019
We investigate how a shock to corporate demand for experienced directors (i.e., U.S. Congress’ grant of Permanent Normal Trade Relations status to China in 2000) affects U.S. firms’ board structure and board advisory role. We find that firms appoint more outside directors with China-related experience after the grant. Firms with such directors realize higher returns around announcements of investments involving Chinese firms and better post-deal operating performance, particularly when these directors reside in the U.S. The appointment of directors with China experience is also greeted more positively by the stock market and they gain more board seats after the grant.
Keywords: Permanent normal trade relations, China-related experience, Board structure, Advisory role, Investment decision, Announcement return, Operating performance, Director labor market
JEL Classification: G14, G32, G34, O24
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