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Zombie Board: Board Tenure and Firm Performance

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  • Sterling Huang
  • Gilles Hilary

    (GU - Georgetown University [Washington])

Abstract

We show that board tenure exhibits an inverted U‐shaped relation with firm value and accounting performance. The quality of corporate decisions, such as M&A, financial reporting quality, and CEO compensation, also has a quadratic relation with board tenure. Our results are consistent with the interpretation that directors’ on‐the‐job learning improves firm value up to a threshold, at which point entrenchment dominates and firm performance suffers. To address endogeneity concerns, we use a sample of firms in which an outside director suffered a sudden death, and find that sudden deaths that move board tenure away from (toward) the empirically observed optimum level in the cross‐section are associated with negative (positive) announcement returns. The quality of corporate decisions also follows an inverted U‐shaped pattern in a sample of firms affected by the death of a director.
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  • Sterling Huang & Gilles Hilary, 2018. "Zombie Board: Board Tenure and Firm Performance," Working Papers hal-01736889, HAL.
  • Handle: RePEc:hal:wpaper:hal-01736889
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01736889
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    6. Mojambo, Gabriel A.M. & Tulung, Joy Elly & Saerang, Regina Trivena, 2020. "The Influence of Top Management Team (TMT) Characteristics Toward Indonesian Banks Financial Performance During The Digital Era (2014-2018)," MPRA Paper 108783, University Library of Munich, Germany.
    7. Bebchuk, Lucian A. & Brav, Alon & Jiang, Wei & Keusch, Thomas, 2020. "Dancing with activists," Journal of Financial Economics, Elsevier, vol. 137(1), pages 1-41.
    8. Liew, Chee Yoong & Devi, S.Susela, 2020. "Independent Directors’ Tenure, Expropriation, Related Party Transactions, and Firm Value: The Role of Ownership Concentration in Malaysian Publicly Listed Corporations," MPRA Paper 99705, University Library of Munich, Germany.
    9. Lee, Wei-Ming, 2020. "The determinants and effects of board committees," Journal of Corporate Finance, Elsevier, vol. 65(C).
    10. Fernando Alexandre & Sara Cruz & Miguel Portela, 2020. "Financial distress and the role of management in micro and small-sized firms," NIPE Working Papers 06/2020, NIPE - Universidade do Minho.
    11. Fernando A. Tejerina-Gaite & Miguel A. Fernández-Temprano, 2021. "The influence of board experience on firm performance: does the director’s role matter?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 685-705, September.
    12. Fu, Yishu, 2019. "Independent directors, CEO career concerns, and firm innovation: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    13. Lucian A. Bebchuk & Alon Brav & Wei Jiang & Thomas Keusch, 2019. "Dancing With Activists," NBER Working Papers 26171, National Bureau of Economic Research, Inc.
    14. Datta, Deepak K. & Basuil, Dynah A. & Agarwal, Ankita, 2020. "Effects of board characteristics on post-acquisition performance: A study of cross-border acquisitions by firms in the manufacturing sector," International Business Review, Elsevier, vol. 29(3).
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    16. Stefan Schmid & Simon Mitterreiter, 2020. "International Top Managers on Corporate Boards: Dissimilarity and Tenure," Management International Review, Springer, vol. 60(5), pages 787-825, October.
    17. Liliana Nicoleta Simionescu & Dalina Dumitrescu, 2018. "Empirical Study towards Corporate Social Responsibility Practices and Company Financial Performance. Evidence for Companies Listed on the Bucharest Stock Exchange," Sustainability, MDPI, vol. 10(9), pages 1-23, September.
    18. Harakeh, Mostafa & El-Gammal, Walid & Matar, Ghida, 2019. "Female directors, earnings management, and CEO incentive compensation: UK evidence," Research in International Business and Finance, Elsevier, vol. 50(C), pages 153-170.

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