In this paper I show that board tenure exhibits an inverted U-shaped relation with firm value. The value and quality of corporate decisions such as M&A, financial reporting, CEO compensation and replacement, and innovation also depend non-linearly on board tenure. The results are consistent with directors’ on-the-job learning improving firm value up to some threshold, at which point entrenchment dominates and firm value suffers. The paper further shows that the inverted U-shaped relation remains even when holding board composition constant, suggesting that the benefits and costs of learning and entrenchment (above and beyond those driven by changes in board composition) change over time and hence affect firm decisions and performance. To address endogeneity concerns, I use a sample of sudden deaths of outside directors and find that sudden deaths that move board tenure away from (toward) the empirically observed maximum are associated with a negative (positive) announcement return.
oard Tenure, Firm Value, Corporate Policies, Learning, Entrenchment
Accounting | Corporate Finance | Strategic Management Policy
Corporate Reporting and Disclosure
HUANG, Sterling Zhenrui.
Zombie Board: Board Tenure and Firm Performance. (2013). Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1329
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