Does personal liability deter individuals from serving as independent directors?

S. Lakshmi Naaraayanan and Kasper Meisner Nielsen

Journal of Financial Economics, 2021, vol. 140, issue 2, 621-643

Abstract: This study examines whether personal liability for corporate malfeasance deters individuals from serving as independent directors. After the introduction of personal liability in India, we find that individuals are deterred from serving on corporate boards. We find stronger deterrence among firms with greater litigation and regulatory risk, higher monitoring costs, and weak monetary incentives. Expert directors are more likely to exit, resulting in 1.16% lower firm value. We further evaluate whether contemporaneous corporate governance reforms and market developments contribute to this deterrence. Overall, our results suggest that personal liability deters individuals with high reputational costs from serving as independent directors.

Keywords: Independent directors; Reputation; Accountability; Personal liability; Director incentives (search for similar items in EconPapers)
JEL-codes: G30 G34 J33 M41 (search for similar items in EconPapers)
Date: 2021
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:jfinec:v:140:y:2021:i:2:p:621-643

DOI: 10.1016/j.jfineco.2021.01.003

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