Disciplinary directors: Evidence from the appointments of outside directors who have fired CEOs

Jay Cai and Tu Nguyen

Journal of Banking & Finance, 2018, vol. 96, issue C, 221-235

Abstract: By examining board appointments of outside directors who have previously fired a CEO, we study how directors’ willingness to take disciplinary actions is related to a firm's performance and risk-taking. Such directors (‘disciplinary directors’) appear to benefit firms with weak monitoring, but hurt firms in innovative industries. Firms appointing a disciplinary director subsequently exhibit lower idiosyncratic risk, leverage, and R&D expense, make fewer acquisitions, and are more likely to replace poorly performing CEOs. Overall, disciplinary directors appear to influence managerial behavior and shareholder wealth.

Keywords: Board of directors; Disciplinary effects; Risk-taking; CEO turnover; Director reputation (search for similar items in EconPapers)
JEL-codes: G34 M12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:96:y:2018:i:c:p:221-235

DOI: 10.1016/j.jbankfin.2018.09.012

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