Independent Director Incentives: Where do Talented Directors Spend Their Limited Time and Energy?

Independent Director Incentives: Where do Talented Directors Spend Their Limited Time and Energy?

Ronald Masulis, Shawn Mobbs

Series number :

Serial Number: 
355/2013

Date posted :

March 01 2013

Last revised :

March 22 2013
SSRN Share

Keywords

  • Director incentives • 
  • busy directors • 
  • labor markets • 
  • firm reputation • 
  • Firm performance

We study reputation incentives in the director labor market and find that directors with multiple directorships distribute their effort unequally according to the directorship's relative prestige. When directors experience an exogenous increase in a directorship's relative ranking, their board attendance rate increases and subsequent firm performance improves.

Also, directors are less willing to relinquish their relatively more prestigious directorships, even when firm performance declines. Finally, forced CEO departure sensitivity to poor performance rises when a larger fraction of independent directors view the board as relatively more prestigious. We conclude that director reputation is a powerful incentive for independent directors.

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Authors

Professor
Real name: 
Ronald Masulis
Research Member
School of Banking and Finance, Australian School of Business
Real name: 
Shawn Mobbs