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Independent director incentives: Where do talented directors spend their limited time and energy?

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  • Masulis, Ronald W.
  • Mobbs, Shawn
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    Abstract

    We study reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally based on the directorship's relative prestige. When directors experience an exogenous increase in a directorship's relative ranking, their board attendance rate increases and subsequent firm performance improves. Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines. Finally, forced Chief Executive Officer departure sensitivity to poor performance rises when a larger fraction of independent directors view the board as relatively more prestigious. We conclude that director reputation is a powerful incentive for independent directors.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 111 (2014)
    Issue (Month): 2 ()
    Pages: 406-429

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    Handle: RePEc:eee:jfinec:v:111:y:2014:i:2:p:406-429

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Director incentives; Busy directors; Labor markets; Firm reputation; Firm performance;

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    References

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    Cited by:
    1. Humphery-Jenner, Mark & Powell, Ronan, 2014. "Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 57-77.

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