Unveiling the Role of Director-Specific Quality in Creating Firm Value

We provide a measure, which we term director-specific quality (DSQ), that captures a director's repeatable and transferable skill that they can use to improve value across different firms. We find that DSQ is correlated with difficult-to-quantify soft skills and easy-to-quantify hard skills. Moreover, DSQ is impactful, accounting for 10% of the variation in firm value. Consistent with DSQ capturing value-relevant traits, investors respond more (less) favorably when they are appointed (die), and directors with higher DSQ garner stronger voter support. Further, boards with higher DSQ demonstrate improved decision making related to cash management, CEO compensation, innovation, and mergers and acquisitions. Analyses utilizing director deaths confirm these effects. Exploiting the COVID-19 pandemic, we also find that firms with higher board-level DSQ performed better during this period. Overall, our study contributes to a nuanced understanding of directorial efficacy and provides a measure of DSQ that can be used in future studies.