Do Boards Have Style? Evidence from Director Style Divergence and Board Turnover
56 Pages Posted: 5 Dec 2018 Last revised: 17 Aug 2019
Date Written: August 9, 2019
We identify persistent director style effects on corporate policies. Director style explains a significant amount of cross-sectional variation in firm policy variables for financing, investment, operations, and corporate governance, among others. The results are significantly different from counterfactual random assignments of directors to firms, validating the director style measures. We aggregate director styles at the firm level to create a median board style. Directors styles that deviate from board style, particularly on R\&D and executive compensation policies, are significantly more likely to leave the board or leave their appointment to key board committees. Style-divergent directors across all policies are also more likely to leave the board when the firm does well, as are those with divergent CEO compensation styles when the CEO's salary is high. Board style has predictive power for future firm performance.
Keywords: Board of Directors, Corporate Governance, Board Dynamics
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation