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

Review of Corporate Finance Studies, forthcoming

74 Pages Posted: 25 Nov 2019 Last revised: 2 Jun 2021

See all articles by Mark A. Chen

Mark A. Chen

Georgia State University - Robinson College of Business

Hai Tran

Loyola Marymount University - Department of Finance

Qinxi Wu

Baylor University - Hankamer School of Business

Evgenia Zhivotova

University of Amsterdam Business School

Date Written: April 5, 2021

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

Suggested Citation

Chen, Mark A. and Tran, Hai and Wu, Qinxi and Zhivotova, Evgenia, Are Directors Rewarded for Excellence? Evidence from Reputation Shocks and Career Outcomes (April 5, 2021). Review of Corporate Finance Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=3481519 or http://dx.doi.org/10.2139/ssrn.3481519

Mark A. Chen

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Hai Tran (Contact Author)

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

Qinxi Wu

Baylor University - Hankamer School of Business ( email )

Waco, TX 76798
United States

Evgenia Zhivotova

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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