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Distracted directors: Does board busyness hurt shareholder value?

Author

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  • Falato, Antonio
  • Kadyrzhanova, Dalida
  • Lel, Ugur

Abstract

We use the deaths of directors and chief executive officers as a natural experiment to generate exogenous variation in the time and resources available to independent directors at interlocked firms. The loss of such key co-employees is an attention shock because it increases the board committee workload only for some interlocked directors—the ‘treatment group’. There is a negative stock market reaction to attention shocks only for treated director-interlocked firms. Interlocking directors׳ busyness, the importance of their board roles, and their degree of independence magnify the treatment effect. Overall, directors׳ busyness is detrimental to board monitoring quality and shareholder value.

Suggested Citation

  • Falato, Antonio & Kadyrzhanova, Dalida & Lel, Ugur, 2014. "Distracted directors: Does board busyness hurt shareholder value?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 404-426.
    • Handle: RePEc:eee:jfinec:v:113:y:2014:i:3:p:404-426
    DOI: 10.1016/j.jfineco.2014.05.005
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    More about this item

    Keywords

    Busy directors; Multiple directorship; Firm valuation; Independent directors; Director and CEO death;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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