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What motivates independent directors to join or leave boards? The interplay between director incentives, director decisions, and firm outcomes

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  • Corinna Ewelt‐Knauer
  • Hannes Gerstel
  • Mohamed A. Khaled
  • Arnt Wöhrmann

Abstract

Reputation, monetary, risk, and workload incentives affect independent directors' decisions to join new or leave existing board of directors' seats, impacting their directorship portfolios. Using a director's perspective and relative incentive proxies, we find that directors strategically relinquish less prestigious board seats to increase their reputation. Similarly, we hypothesize and find that accepting an additional board nomination is incentivized by a director's goal to achieve higher reputation growth. Lastly, by taking on a firm's perspective, we find a positive association between the board's aggregated portfolio reputation and risk propensity with firm performance and earnings management.

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  • Corinna Ewelt‐Knauer & Hannes Gerstel & Mohamed A. Khaled & Arnt Wöhrmann, 2024. "What motivates independent directors to join or leave boards? The interplay between director incentives, director decisions, and firm outcomes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(4), pages 2282-2303, June.
    • Handle: RePEc:wly:mgtdec:v:45:y:2024:i:4:p:2282-2303
    DOI: 10.1002/mde.4125
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