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Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance

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  • Ying Dou
  • Sidharth Sahgal
  • Emma Jincheng Zhang

Abstract

type="main"> We examine the role of independent directors with extended tenure in board-level governance, monitoring decisions, and advising outcomes. These directors exhibit a higher level of commitment as they attend more board meetings and take more committee memberships. Firms with a higher proportion of these directors have lower chief executive officer (CEO) pay, higher CEO turnover-performance sensitivity, and a smaller likelihood of intentionally misreporting earnings. These firms also restrict the expansion of resources under the CEO's control as they are less likely to make acquisitions, while the acquisitions they do make are of higher quality. Efforts to impose term limits on directors may, therefore, be misguided.

Suggested Citation

  • Ying Dou & Sidharth Sahgal & Emma Jincheng Zhang, 2015. "Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance," Financial Management, Financial Management Association International, vol. 44(3), pages 583-621, September.
    • Handle: RePEc:bla:finmgt:v:44:y:2015:i:3:p:583-621
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