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Upheaval in the boardroom: Outside director public resignations, motivations, and consequences

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  • Dewally, Michaël
  • Peck, Sarah W.

Abstract

We investigate the motives and circumstances surrounding outside directors' decisions to publicly announce their board resignations. Directors who leave "quietly" are in their mid-sixties and professional directors, i.e., retirees, who are retiring entirely from professional life. Directors who announce their resignation are in their mid-fifties and active professionals. Half the time they say they are leaving because they are "busy." These directors leave from firms with some weakness in their performance, but with no overt manifestations of cronyism such as excessive compensation of either the CEO or directors. The other half of the time directors leave while publicly criticizing the firm. These directors are finance professionals who were members of the audit and compensation committees. They resign from firms with weak boards and financial performance with evidence that managers have manipulated earnings upwards. Public criticism appears to pressure these boards to make management changes associated with improved stock price performance. We conclude that while such public resignations are motivated by the reputational concerns of directors, they can act as a disciplining device for poor board performance.

Suggested Citation

  • Dewally, Michaël & Peck, Sarah W., 2010. "Upheaval in the boardroom: Outside director public resignations, motivations, and consequences," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 38-52, February.
  • Handle: RePEc:eee:corfin:v:16:y:2010:i:1:p:38-52
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    References listed on IDEAS

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    Cited by:

    1. Estélyi, Kristína Sághy & Nisar, Tahir M., 2016. "Diverse boards: Why do firms get foreign nationals on their boards?," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 174-192.
    2. Yanmin Gao & Jeong-Bon Kim & Desmond Tsang & Haibin Wu, 2017. "Go before the whistle blows: an empirical analysis of director turnover and financial fraud," Review of Accounting Studies, Springer, vol. 22(1), pages 320-360, March.
    3. Singh, Preet Deep & Singla, Chitra, 2016. "Impact of Independent Directors’ Resignations on Firm’s Governance," IIMA Working Papers WP2016-03-36, Indian Institute of Management Ahmedabad, Research and Publication Department.
    4. repec:eee:jbrese:v:83:y:2018:i:c:p:82-96 is not listed on IDEAS
    5. Fahlenbrach, Rudiger & Low, Angie & Stulz, Rene M., 2010. "The Dark Side of Outside Directors: Do They Quit When They Are Most Needed?," Working Paper Series 2010-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Aharony, Joseph & Liu, Chelsea & Yawson, Alfred, 2015. "Corporate litigation and executive turnover," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 268-292.
    7. Preet Singh & Chitra Singla, 2016. "Impact of Independent Directors’ Resignations on Firm’s Governance," Working Papers id:11037, eSocialSciences.
    8. repec:wsi:qjfxxx:v:07:y:2017:i:03:n:s2010139217500069 is not listed on IDEAS
    9. repec:bla:stratm:v:37:y:2016:i:13:p:2695-2708 is not listed on IDEAS
    10. Sharon Kemp, 2010. "Driving Strategy or Just Going through the Motions: An Empirical Study of Boardrooms in the UK," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 1(1), pages 2-18, November.

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