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Powerful Independent Directors

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  • Kathy Fogel
  • Liping Ma
  • Randall Morck

Abstract

Shareholder valuations are economically and statistically positively correlated with more powerful independent directors, their power gauged by social network power centrality measures. Sudden deaths of powerful independent directors significantly reduce shareholder value, consistent with independent director power “causing” higher shareholder value. Further empirical tests associate more powerful independent directors with fewer value-destroying M&A bids, more high-powered CEO compensation and accountability for poor performance, and less earnings management. We posit that more powerful independent directors can better detect and counter managerial missteps because of their better access to information, their greater credibility in challenging errant top managers, or both.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19809.

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Date of creation: Jan 2014
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Handle: RePEc:nbr:nberwo:19809

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