Independent director incentives: Where do talented directors spend their limited time and energy?

Ronald Masulis and Shawn Mobbs

Journal of Financial Economics, 2014, vol. 111, issue 2, 406-429

Abstract: We study reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally based on the directorship's relative prestige. When directors experience an exogenous increase in a directorship's relative ranking, their board attendance rate increases and subsequent firm performance improves. Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines. Finally, forced Chief Executive Officer departure sensitivity to poor performance rises when a larger fraction of independent directors view the board as relatively more prestigious. We conclude that director reputation is a powerful incentive for independent directors.

Keywords: Director incentives; Busy directors; Labor markets; Firm reputation; Firm performance (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (152)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:111:y:2014:i:2:p:406-429

DOI: 10.1016/j.jfineco.2013.10.011

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