Industry Expert Directors
Series
School of Finance Working Paper Series
Type
working paper
Author(s)
Abstract
We analyze the valuation effect of board industry experience and channels through which in- dustry 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 expe- rienced outside directors. Additional analyses, including a quasi-experimental setting based on director deaths, mitigate endogeneity concerns. Further tests show that the board industry ex- perience-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
Keywords
Board of directors
Director skills and experience
Corporate governance
Corporate In- vestments
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Publisher
SoF-HSG
Publisher place
St. Gallen
Volume
2014/01
Number
01
Pages
17
Subject(s)
Division(s)
Contact Email Address
markus.schmid@unisg.ch
Eprints ID
254086
File(s)![Thumbnail Image]()
open.access
Name
SSRN-id2256477.pdf
Size
1.01 MB
Format
Adobe PDF
Checksum (MD5)
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