Does Independent Directors’ CEO Experience Matter?

Shinwoo Kang, E Han Kim and Yao Lu

Review of Finance, 2018, vol. 22, issue 3, 905-949

Abstract: We find the confluence of CEO-same industry experience makes independent directors particularly helpful in enhancing value-added growth and we identify a channel: guidance toward higher value-added R&D investments and higher quality innovations. Further corroborating these inferences, we find greater improvement in value-added growth when (1) independent directors with industry–CEO experience (IDICEs) have experience in more similar industries; (2) they create more shareholder value as CEO; and (3) they are current CEOs. In addition, IDICEs contribute to value-added growth most when firm environments and characteristics are conducive for active board-management interaction; namely, when product markets are more competitive and dynamic, when outsiders can more easily acquire firm-specific information, and when firms are younger and smaller. Consistent with our inferences on how IDICEs contribute to value-added growth, firms growing faster, less successfully innovating, and/or under strong governance tend to be matched with IDICEs.

Keywords: Industry–CEO experience; Board advising; Value-added growth; Innovation; R&D investments (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (18)

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