Do CEOs' Outside Directorships Affect the Performance of Their Own Firms?

Abstract

The practice of CEOs serving on the boards of other firms has raised concerns from investors and proxy advisory firms about the potential harm to shareholders of CEOs’ own firms. I find that holding just one outside directorship benefits shareholders while holding multiple directorships results in a performance decline. Evidence suggests that benefits come from CEOs' learning as CEOs without any previous outside board experience and CEOs with low general management ability lead to a more substantial performance increase. These findings support investors' concerns but also point out the benefits of CEOs' outside board experience from management skill development.

Keywords: Chief Executive Officer (CEO); Outside director; Board experience; General management skill; Corporate governance

JEL Classification: G34, J24