Activist Rookie Directors

Abstract

We examine the value-enhancing role of unseasoned independent directors nominated through shareholder activism events (Activist UIDs). Firms appointing Activist UIDs experience a larger value increase than firms whose UIDs are appointed by incumbent boards, particularly when Activist UIDs have relevant experience, when they sit on monitoring committees, and when their sponsors hold larger target ownership. These firms also increase dividends, cut overinvestment, and improve corporate governance post-appointment. We further find that the appointments of Activist UIDs are greeted more positively by the market and that they obtain more favorable shareholder votes and more additional directorships, particularly in larger firms.

Keywords: Activist Unseasoned iIndependent Directors, Activist Shareholder, Monitoring, Firm Vvalue, Announcement Return, Director Voting, Director Labor Market

JEL Classification: G14, G30, G32, G34