Industry Expert Directors
Type
conference paper
Date Issued
2015-12-16
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. Further tests show that the board industry experience-firm value relation is more pronounced for firms with larger investment programs, larger cash reserves, and during crises. In contrast, it is weaker in more dynamic industries where the value of previously acquired experience is likely to be diminished. We also provide some evidence that corporate governance problems in firms, in particular entrenched CEOs, and a limited supply of industry experts prevent firms from appointing more industry experts to their boards, even though this would be value-increasing. Overall, our findings are consistent with board industry experience being a valuable corporate governance mechanism.
Language
English
HSG Classification
contribution to scientific community
Refereed
No
Event Title
28th Australasian Finance and Banking Conference (AFBC)
Event Location
Sydney
Event Date
16.-18.12.2015
Subject(s)
Division(s)
Eprints ID
246668