Publication Type

Journal Article

Version

acceptedVersion

Publication Date

9-2018

Abstract

We show that board tenure exhibits an inverted U-shaped relation with firm value and accounting performance. The quality of corporate decisions, such as M&A, financial reporting quality, and CEO compensation, also has a quadratic relation with board tenure. Our results are consistent with the interpretation that directors’ on-the-job learning improves firm value up to a threshold, at which point entrenchment dominates and firm performance suffers. To address endogeneity concerns, we use a sample of firms in which an outside director suffered a sudden death, and find that sudden deaths that move board tenure away from (toward) the empirically observed optimum level in the cross-section are associated with negative (positive) announcement returns. The quality of corporate decisions also follows an inverted U-shaped pattern in a sample of firms affected by the death of a director.

Keywords

Board tenure, Corporate policies, Entrenchment, Firm value, Learning

Discipline

Accounting | Business Law, Public Responsibility, and Ethics

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Accounting Research

Volume

56

Issue

4

First Page

1285

Last Page

1329

ISSN

0021-8456

Identifier

10.1111/1475-679X.12209

Publisher

Wiley: 24 months - No Online Open

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/1475-679X.12209

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