Unveiling the Role of Director-Specific Quality in Creating Firm Value

70 Pages Posted: 23 Sep 2022 Last revised: 23 Sep 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: September 20, 2023

Abstract

We provide a measure, which we term director-specific quality (DSQ), that captures a director's repeatable and transferable skill that they can use to improve value across different firms. We find that DSQ is correlated with difficult-to-quantify soft skills and easy-to-quantify hard skills. Moreover, DSQ is impactful, accounting for 10% of the variation in firm value. Consistent with DSQ capturing value-relevant traits, investors respond more (less) favorably when they are appointed (die), and directors with higher DSQ garner stronger voter support. Further, boards with higher DSQ demonstrate improved decision making related to cash management, CEO compensation, innovation, and mergers and acquisitions. Analyses utilizing director deaths confirm these effects. Exploiting the COVID-19 pandemic, we also find that firms with higher board-level DSQ performed better during this period. Overall, our study contributes to a nuanced understanding of directorial efficacy and provides a measure of DSQ that can be used in future studies.

Keywords: Board of Directors, Director Quality, Firm Value, Director Characteristics JEL Classifications: G14

JEL Classification: G14, G30, G32, G34

Suggested Citation

Bhattarai, Dipesh and Serfling, Matthew and Woidtke, Tracie, Unveiling the Role of Director-Specific Quality in Creating Firm Value (September 20, 2023). 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)

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