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Industry expertise on corporate boards

Author

Listed:
  • Olubunmi Faleye

    (Northeastern University)

  • Rani Hoitash

    (Bentley University)

  • Udi Hoitash

    (Northeastern University)

Abstract

Recent surveys indicate that industry expertise is the most sought-after director qualification. Yet evidence on the value of such expertise is limited. This paper shows that firms that are difficult for non-experts to monitor and advise are more likely to appoint industry expert directors. Such appointments also depend on the supply of industry-experienced candidates in the local director labor market. Board industry expertise reduces R&D-based real earnings management and increases R&D investments. The increase in R&D spending is value-enhancing: firms with industry expert directors receive more patents for the same level of R&D, their R&D spending is associated with lower volatility of future earnings, and their value is higher. Finally, industry expertise is associated with CEO termination and pay incentives that encourage R&D investments.

Suggested Citation

  • Olubunmi Faleye & Rani Hoitash & Udi Hoitash, 2018. "Industry expertise on corporate boards," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 441-479, February.
    • Handle: RePEc:kap:rqfnac:v:50:y:2018:i:2:d:10.1007_s11156-017-0635-z
    DOI: 10.1007/s11156-017-0635-z
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    More about this item

    Keywords

    Director qualifications; Industry expertise; Real earnings management; R&D;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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