Finance Seminar

How important is the industry experience of independent directors?

Seng Xiao, University of Minnesota

16th Mar 2012  11:30 am - Room 214/215, H69 - Economics and Business Building

We analyze a newly available data set with the full employment history of independent directors at S&P 1500 companies and show that the proportion of independent directors with industry experience (IDIEs) is positively and significantly correlated with firm performance, but the proportion of independent directors without industry experience (IDNIEs) is not. We find that higher proportions of IDIEs are associated with fewer earnings restatements and more cash holdings. Firms with IDIEs have higher CEO pay-performance sensitivity, higher CEO turnover-performance sensitivity, and more patents with more citations. We also find that CEO power is negatively correlated with the presence of IDIEs.