Board Industry Experience, Firm Value, and Investment Behavior

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.