Director attention and firm value

Rex Wang Renjie and Patrick Verwijmeren

Financial Management, 2020, vol. 49, issue 2, 361-387

Abstract: In this article, we show that exogenous director distraction affects board monitoring intensity and leads to a higher level of inactivity by management. We construct a firm‐level director “distraction” measure by exploiting shocks to unrelated industries in which directors have additional directorships. Directors attend significantly fewer board meetings when they are distracted. Firms with distracted board members tend to be inactive and experience a significant decline in firm value. Overall, this article highlights the impact of limited director attention on the effectiveness of corporate governance and the importance of directors in keeping management active.

Date: 2020
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