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The Dark Side of Outside Directors: Do they Quit When They are Most Needed?

Ruediger Fahlenbrach, Angie Low and René Stulz
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Angie Low: Nanyang Business School, Nanyang Technological University

No 10-17, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Outside directors have incentives to resign to protect their reputation or to avoid an increase in their workload when they anticipate that the firm on whose board they sit will perform poorly or disclose adverse news. We call these incentives the dark side of outside directors. We find strong support for the existence of this dark side. Following surprise director departures, affected firms have worse stock and operating performance, are more likely to suffer from an extreme negative return event, are more likely to restate earnings, and have a higher likelihood of being named in a federal class action securities fraud lawsuit.

Keywords: Director departures; reputational concerns; director monitoring (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2010-03
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http://www.ssrn.com/abstract=1585192 (application/pdf)

Related works:
Working Paper: The Dark Side of Outside Directors: Do They Quit When They Are Most Needed? (2010) Downloads
Working Paper: The dark side of outside directors: Do they quit when they are most needed? (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1017

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