Determinants Of Outside Director Turnover

In this paper we provide evidence that independent director turnover is influenced by a series of economic factors. Directors, both independent and insider, are less likely to leave if they are paid well or if the firm has a director pension plan. They are also more likely to leave when the firm is performing poorly or when they expect it to perform poorly. They are more likely to leave when the firm is riskier, but are less likely to leave when they chair certain committees such as the audit and compensation committee, which may bring them more prestige, or perhaps an additional stipend. Differentially, the association between turnover and firm performance is weaker for inside directors. This is consistent with inside directors’ response to reputation concerns being lower than that of independent directors due to the bonding and compensation effects.