Trainspotting: Board Appointments in Private Firms
Posted: 7 Aug 2019 Last revised: 20 Feb 2020
Date Written: August 2, 2019
We examine how the size of the corporate directors' labor market affects the quality of board appointments in Italian private firms. To establish the causality of the relationship, we exploit exogenous variation in a firm's access to non-local potential directors induced by the gradual introduction of a high-speed train, which improved the connection between cities. Using administrative data on board members of the universe of limited liability companies and a two-way fixed effects model, we obtain time-invariant measures of the firm and director quality. We demonstrate that a positive shock to the non-local director supply increases the extent of positive assortative matching between firms and directors: high-quality firms improve the quality of their boards, while lower quality firms attract lower quality directors. The effect arises from a more active re-matching along the high-speed train line. Our results further suggest that the better-fitted boards are associated with higher firm growth and productivity, and lower credit risk score.
Keywords: director supply, board of directors, match quality, productivity
JEL Classification: G32, G34
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