Board Committees and Director Departures

47 Pages Posted: 12 Apr 2021

See all articles by Murali Jagannathan

Murali Jagannathan

SUNY at Binghamton - School of Management

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management

Joshua D. Spizman

Loyola Marymount University - Department of Finance

Date Written: February 27, 2021

Abstract

We examine whether directors utilize private information obtained through their committee memberships to depart from firms prior to the revelation of their poor performance. Such departures raise the concern that directors leave the firm when they are most needed. Utilizing private information to make decisions in their personal interest may also violate the directors’ fiduciary duties. We focus on departures of audit committee members since information regarding earnings quality should be available to them prior to public release. The departure of audit committee members who serve on multiple boards is coincident with a deterioration in earnings quality. Other directors do not appear to time their departure based on declines in earnings quality. Results from examining the reasons behind this finding are consistent with the director’s preference to lead a “quiet life” and a desire to lower their exposure to litigation risk rather than to protect their reputation in the director market.

Keywords: Director Departures, Board Committees, Audit Committee

JEL Classification: G34, M42, M49

Suggested Citation

Jagannathan, Murali and Krishnamurthy, Srinivasan and Spizman, Joshua D., Board Committees and Director Departures (February 27, 2021). Available at SSRN: https://ssrn.com/abstract=3823393 or http://dx.doi.org/10.2139/ssrn.3823393

Murali Jagannathan

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-4639 (Phone)

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States

Joshua D. Spizman (Contact Author)

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States
(310) 338-2902 (Phone)

HOME PAGE: http://www.joshuaspizman.com

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