Attention, please! Independent directors and startup performance

Abstract

The typical ownership structure at startups is such that directors need not monitor managers. What then is the role of independent directors (IDs) at startups? To study this question, I exploit the fact that some IDs sit on multiple boards simultaneously for identification and analyze the effects of director distraction on company outcomes. I find that IDs add value to startups by investing significant time and attention, with stronger results for more experienced directors. Overall, my results show that IDs at startups do not merely have a passive certification role but play an important active advising function.

Keywords: Entrepreneurship, corporate governance, non-executive directors

JEL Classification: G34, M13