Trainspotting: Board Appointments in Private Firms
42 Pages Posted: 7 Aug 2019 Last revised: 26 May 2020
Date Written: May 25, 2020
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 private firms' boards with better "quality" directors are associated with higher firm growth and productivity, and lower probability of default.
Keywords: director supply, board of directors, match quality
JEL Classification: G32, G34
Suggested Citation: Suggested Citation