Options
Board Industry Experience, Firm Value, and Investment Behavior
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2014
Author(s)
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.
Language
English
Keywords
Board of directors
Director skills and experience
Cash Holdings
Corporate governance
HSG Classification
contribution to scientific community
Refereed
No
Publisher
School of Finance
Publisher place
St. Gallen
Number
2014/1
Subject(s)
Division(s)
Eprints ID
229377