Do Long-Tenured Boards Provide Stability?

Abstract

This paper investigates whether average director tenure affects a firm's performance variability. We find that a one standard deviation increase in the average director tenure is associated with a 7.15% proportional decrease in annualized return volatility. A likely explanation is that long-tenured boards prefer the quiet life and make persistent and predictable policies. Consistent with this hypothesis, we find that firms with long-tenured boards have smoother investment patterns and more stable cash flows. Our work contributes to the growing literature that corporate governance can affect firm risk.

Keywords: board of directors, return volatility, director tenure

JEL Classification: G3