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Discipline of Finance

The dark side of outside directors: Do they quit ahead of trouble?"

Associate Professor Angie Low, Nanyang Technological University Singapore

22nd Nov 2013  11:30 am - 11:30 am Room 214/215 H69


Outside directors have incentives to resign to protect their reputation or to avoid an increase in their workload when they anticipate that the firm on whose board they sit will perform poorly or disclose adverse news. We call these incentives the dark side of outside directors. We find strong support for the existence of a dark side. Following surprise director departures, affected firms have worse stock and operating performance, are more likely to suffer from an extreme negative return event, are more likely to restate earnings, have a higher likelihood of being named in a federal class action securities fraud lawsuit, and make worse mergers and acquisitions. Consistent with the market inferring bad news from surprise departures, the announcement return for surprise director departures is negative.


Room 214/215
Economics and Business Building (H69)
The University of Sydney Business School


Elvis Jarnecic
T +61 2 9351 8708