How valuable are independent directors? Evidence from external distractions

Ronald Masulis and Emma Jincheng Zhang

Journal of Financial Economics, 2019, vol. 132, issue 3, 226-256

Abstract: We provide new evidence on the value of independent directors by exploiting exogenous events that seriously distract independent directors. Approximately 20% of independent directors are significantly distracted in a typical year. They attend fewer meetings, trade less frequently in the firm's stock, and resign from the board more frequently, indicating declining firm-specific knowledge and a reduced board commitment. Firms with more preoccupied independent directors have declining firm valuation and operating performance and exhibit weaker merger and acquisition (M&A) profitability and accounting quality. These effects are stronger when distracted independent directors play key board monitoring roles and when firms require greater director attention.

Keywords: Independent directors; Director incentives; Director distraction; Corporate performance (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:3:p:226-256

DOI: 10.1016/j.jfineco.2018.02.014

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