Are Directors Rewarded for Excellence? Evidence from Reputation Shocks and Career Outcomes

Abstract

This study examines whether the labor market rewards directors for individual excellence. Unlike existing research that focuses on the reputation effects of board-level decisions, we use national director awards to capture large, positive shocks to individual reputation. We find strong evidence that the labor market recognizes and rewards “superstar” directors. Award events lead to positive announcement returns and increase awardees’ chances of gaining new board seats at large, prestigious firms. Consistent with theories of career concerns and labor-market signaling, the reputational effects are greater for younger directors and for non-overboarded directors. The results from instrumental variables estimation support a causal interpretation. Overall, our findings offer new insights into the nature of reputation and rewards at the upper echelon of the director labor market.

Keywords: Boards, directors, reputation, director awards, career concerns, director labor markets

JEL Classification: G30, G31, G34