Board Industry Experience, Firm Value, and Investment Behavior

Wolfgang Drobetz, Felix von Meyerinck (), David Oesch () and Markus Schmid

No 1401, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We analyze the valuation effect of board industry experience and channels through which industry experience of outside directors affects firm value. Our analysis shows that firms with more experienced outside directors are valued at a premium compared to firms with less experienced outside directors. Additional analyses, including a quasi-experimental setting based on director deaths, mitigate endogeneity concerns. Firms with experienced boards limit investment distortions (lower investment-cash flow sensitivities) by building up valuable financial slack. The results further indicate that firms with experienced boards undertake shareholder-value friendly investments, particularly into R&D. Overall, our findings are consistent with board industry experience being a valuable corporate governance mechanism.

Keywords: Board of directors; Director skills and experience; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2014-01, Revised 2015-12
New Economics Papers: this item is included in nep-bec and nep-cse
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2014:01

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