Independent executive directors: How distraction affects their advisory and monitoring roles

Luke Stein, Hong Zhao

    Research output: Contribution to journalArticle

    Abstract

    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.

    Original languageEnglish (US)
    Pages (from-to)199-223
    Number of pages25
    JournalJournal of Corporate Finance
    Volume56
    DOIs
    StatePublished - Jun 1 2019

    Fingerprint

    Monitoring
    Employers
    Independent directors
    Earnings quality
    CEO turnover
    Expertise
    CEO compensation

    ASJC Scopus subject areas

    • Business and International Management
    • Finance
    • Economics and Econometrics
    • Strategy and Management

    Cite this

    Independent executive directors : How distraction affects their advisory and monitoring roles. / Stein, Luke; Zhao, Hong.

    In: Journal of Corporate Finance, Vol. 56, 01.06.2019, p. 199-223.

    Research output: Contribution to journalArticle

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