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Industry expert directors


Drobetz, Wolfgang; von Meyerinck, Felix; Oesch, David; Schmid, Markus (2018). Industry expert directors. Journal of Banking and Finance, 92(July):195-215.

Abstract

We analyze the valuation effect of board industry experience and channels through which industry experience of outside directors relates to firm value. Our analysis shows that firms with more experienced outside directors are valued at a premium compared to firms with less experienced outside directors. Additional analyses, including a quasi-experimental setting based on director deaths, mitigate endogeneity concerns. The association between having directors with more industry experience and higher firm value is more pronounced for firms with larger investment programs, larger cash reserves, and during crises. In contrast, it is weaker in more dynamic industries, i.e., industries that rank high in terms of sales growth, R&D expenditures, merger activities, competitive threat, and product market changes, where the value of previously acquired experience is likely to be diminished. Overall, our findings are consistent with board industry experience being a valuable corporate governance mechanism.

Abstract

We analyze the valuation effect of board industry experience and channels through which industry experience of outside directors relates to firm value. Our analysis shows that firms with more experienced outside directors are valued at a premium compared to firms with less experienced outside directors. Additional analyses, including a quasi-experimental setting based on director deaths, mitigate endogeneity concerns. The association between having directors with more industry experience and higher firm value is more pronounced for firms with larger investment programs, larger cash reserves, and during crises. In contrast, it is weaker in more dynamic industries, i.e., industries that rank high in terms of sales growth, R&D expenditures, merger activities, competitive threat, and product market changes, where the value of previously acquired experience is likely to be diminished. Overall, our findings are consistent with board industry experience being a valuable corporate governance mechanism.

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10 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:2018
Deposited On:20 Jun 2019 06:37
Last Modified:29 Jul 2020 10:52
Publisher:Elsevier
ISSN:0378-4266
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jbankfin.2018.04.019
Official URL:https://www.sciencedirect.com/science/article/pii/S037842661830092X
Other Identification Number:merlin-id:17861

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