Board Committees and Director Departures
47 Pages Posted: 12 Apr 2021
Date Written: February 27, 2021
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: Suggested Citation