TY - JOUR
T1 - Independent executive directors
T2 - How distraction affects their advisory and monitoring roles
AU - Stein, Luke
AU - Zhao, Hong
N1 - Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/6
Y1 - 2019/6
N2 - Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers’ poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover-performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.
AB - Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers’ poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover-performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.
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U2 - 10.1016/j.jcorpfin.2019.02.003
DO - 10.1016/j.jcorpfin.2019.02.003
M3 - Article
AN - SCOPUS:85062355329
SN - 0929-1199
VL - 56
SP - 199
EP - 223
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
ER -