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Disciplinary directors: Evidence from the appointments of outside directors who have fired CEOs

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  • Cai, Jay
  • Nguyen, Tu

Abstract

By examining board appointments of outside directors who have previously fired a CEO, we study how directors’ willingness to take disciplinary actions is related to a firm's performance and risk-taking. Such directors (‘disciplinary directors’) appear to benefit firms with weak monitoring, but hurt firms in innovative industries. Firms appointing a disciplinary director subsequently exhibit lower idiosyncratic risk, leverage, and R&D expense, make fewer acquisitions, and are more likely to replace poorly performing CEOs. Overall, disciplinary directors appear to influence managerial behavior and shareholder wealth.

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  • Cai, Jay & Nguyen, Tu, 2018. "Disciplinary directors: Evidence from the appointments of outside directors who have fired CEOs," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 221-235.
    • Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:221-235
    DOI: 10.1016/j.jbankfin.2018.09.012
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    Cited by:

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    3. Chen, Chen & Dou, Ying & Kuang, Yu Flora & Naiker, Vic, 2023. "Do professional ties enhance board seat prospects of independent directors with tainted reputations?," Journal of Banking & Finance, Elsevier, vol. 154(C).

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    More about this item

    Keywords

    Board of directors; Disciplinary effects; Risk-taking; CEO turnover; Director reputation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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