Trainspotting: Board Appointments in Private Firms
Posted: 7 Aug 2019 Last revised: 2 Oct 2019
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. 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. Under the assumption that the two are complements in the production process, we measure firm-director match quality by the extent of positive assortative matching. We show that the match quality improves due to a shock in non-local directors' supply; this effect arises from a more active re-matching along the train line. We also document a positive association between this director supply shock and firm growth and productivity. Interestingly, more productive firms benefit more from the access to a broader direct talent pool, while the effect is attenuated for family firms.
Keywords: director supply, board of directors, match quality, productivity
JEL Classification: G32, G34
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