Publication Type

Working Paper

Publication Date

11-2013

Abstract

This study examines the information content of the reasons for resignations by outside directors. Since directors are privy to private information about the firm, they may resign when they foresee future underperformance of the firm in order to reduce or eliminate damage to their reputation because of the poor future performance. However, in such cases directors have strong economic incentive not to disclose the true reason for the resignation in order to avoid loss of wealth through equity ownershipand impact on future directorships, and damage to business relationships. The results are consistent with this conjecture. Specifically, while resignations in general are associated with poor financial and operating performance, as well as with future litigations, there is no relation between the categories of resignations, formed on the basis of the reasons for departure, andfuture financial and operating performance. In addition, all categories are positively associated with future litigation. These results suggest that not all departing directors tell the truth, the whole truth, and nothing but the truth when they resign.

Keywords

outside directors, resignation, disagreement

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://ssrn.com/abstract=1547852

Share

COinS