22 Pages Posted: 4 Oct 2003
I posit and test two competing views on the significance of outside director tenure lengths; the hypothesis suggesting that extended board service time is a sign of director commitment, experience, and competence and the hypothesis suggesting that extended board service time marks directors who befriend management at the expense of shareholders. I find evidence that Senior directors, defined as directors with twenty or more years of board service, are almost twice as likely to occupy a 'management-affiliated' profession compared to the rest, and that they are also more likely to staff the firm's nominating and compensation committees. Senior director participation in the compensation committee is associated with higher pay for the CEO, especially when the CEO is more powerful in the firm. These results are consistent with the management-friendliness hypothesis, and highlight a need for setting term limits for directors.
JEL Classification: G34
Suggested Citation: Suggested Citation
Vafeas, Nikos, Length of Board Tenure and Outside Director Independence. Journal of Business Finance & Accounting, Vol. 30, pp. 1043-1064, September 2003. Available at SSRN: https://ssrn.com/abstract=437917
By Kevin Murphy
This is a Wiley-Blackwell Publishing paper. Wiley-Blackwell Publishing charges $38.00 .
File name: jbfa.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.