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Is Director Industry Experience Valuable?

Felix Von Meyerinck, David Oesch & Markus Schmid

abstract We investigate whether investor reactions to the announcement of a new outside director appointment significantly depend on the director’s experience in the appointing firm’s industry. We use a sample of 385 outside directors appointed to the board of S&P 500 companies from 2008 to 2010. Our results indicate that companies announcing the appointment of a new director with industry experience exhibit economically and statistically significantly higher announcement returns than companies announcing the appointment of a director without such experience. Our results further show that industry experience gained as an inside director drives this result. Experience as an employee without board membership or as an outside director is not associated with significantly higher announcement returns. These results hold when we control for various other director characteristics and financial and corporate governance variables at the firm level. To alleviate endogeneity concerns, we use the deaths of 166 directors holding 229 outside directorships in listed US firms as an identification strategy. Consistent with the results on appointments, we find significantly more negative announcement returns associated with the deaths of experienced vs. inexperienced directors.
   
type working paper (English)
   
keywords Board of directors; Director appointments; Director deaths; Director skills and experi-ence; Corporate governance
   
date of appearance 2012
issuer institution University of St. Gallen
series title SoF Working Paper Series
publisher s/bf - HSG
review not reviewed
   
citation von Meyerinck, F., Oesch, D., & Schmid, M., University of St. Gallen (Eds.), (2012). Is Director Industry Experience Valuable?. SoF Working Paper Series: s/bf - HSG.