Directors: Older and Wiser, or Too Old to Govern?

73 Pages Posted: 26 Nov 2018 Last revised: 6 Dec 2018

See all articles by Ronald W. Masulis

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Cong Wang

The Chinese University of Hong Kong, Shenzhen

Fei Xie

University of Delaware

Shuran Zhang

Jinan University - Management School

Date Written: November 11, 2018

Abstract

An unintended consequence of recent board governance reforms is that U.S firms are increasingly tapping into pools of older independent directors (OIDs), causing their boards to become substantially older. We document that OIDs display monitoring deficiencies and weaken board oversight. Firms with more OIDs exhibit worse performance, which is not driven by poorly performing firms subsequently appointing more OIDs. Investors appear to recognize this and react negatively to OID appointments and to raising directors’ mandatory retirement ages. The negative performance effect can sometimes be mitigated or reversed when firms have stronger advisory needs or OIDs provide particularly valuable experience.

Keywords: boardroom aging, older directors, board monitoring, board advising, agency problems

JEL Classification: G34, G32, G35, G41

Suggested Citation

Masulis, Ronald W. and Wang, Cong and Xie, Fei and Zhang, Shuran, Directors: Older and Wiser, or Too Old to Govern? (November 11, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 584/2018. Available at SSRN: https://ssrn.com/abstract=3284874 or http://dx.doi.org/10.2139/ssrn.3284874

Ronald W. Masulis (Contact Author)

University of New South Wales - Australian School of Business ( email )

UNSW Business School
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Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
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Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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1 Business Link
Singapore, 117592
Singapore

Cong Wang

The Chinese University of Hong Kong, Shenzhen ( email )

Fei Xie

University of Delaware ( email )

Newark, DE 19711
United States

Shuran Zhang

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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