Do Individual Directors Matter? Evidence of Director-Specific Quality

72 Pages Posted: 23 Sep 2022 Last revised: 22 Jan 2023

See all articles by Dipesh Bhattarai

Dipesh Bhattarai

University of Tennessee, Knoxville - Department of Finance

Matthew Serfling

University of Tennessee; European Corporate Governance Institute (ECGI)

Tracie Woidtke

University of Tennessee, Haslam College of Business

Date Written: December 7, 2022

Abstract

We create a new measure called director-specific quality (DSQ) that captures the collection of value-relevant transferable attributes unique to a director and explains 10% of the variation in firm value. Directors with higher DSQ receive greater voter support, and investors respond more (less) favorably when they are appointed (die). Boards with higher DSQ make more value-increasing M&A deals, tie CEO compensation more closely to performance, produce more and higher quality innovation, and manage cash better. Difference-in-differences analyses exploiting director deaths confirm these effects. During the COVID-19 pandemic, firms with higher board-level DSQ also experienced relatively higher stock returns. Overall, our results suggest that directors have unique value-relevant attributes, and who firms hire matters.

Keywords: Board of Directors, Director Quality, Firm Value

JEL Classification: G14, G30, G32, G34

Suggested Citation

Bhattarai, Dipesh and Serfling, Matthew and Woidtke, Tracie, Do Individual Directors Matter? Evidence of Director-Specific Quality (December 7, 2022). European Corporate Governance Institute – Finance Working Paper No. 870/2023, Available at SSRN: https://ssrn.com/abstract=4216979 or http://dx.doi.org/10.2139/ssrn.4216979

Dipesh Bhattarai

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tracie Woidtke

University of Tennessee, Haslam College of Business ( email )

428 Stokely Management Center
Knoxville, TN Tennessee 37996-0540
United States
865-974-1718 (Phone)
865-974-1716 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
254
Abstract Views
802
Rank
186,571
PlumX Metrics