The typical corporate board of directors has nine members, five of whom are “outsiders”, i.e., “who are not current or former employees, and who do not have dealings with the firm.” When such an outsider suddenly and unexpectedly dies, the stock price falls by about 5% on average, and falls even more if that outsider was not appointed by the current CEO. This 5% number is a (1% significant) estimate after controlling for director quality, by studying 30 directors who were outsiders on some boards, and insiders on other boards. This strongly suggests there are large gains to encouraging more independent firm directors.
Rah Firm Board Outsiders
Rah Firm Board Outsiders
Rah Firm Board Outsiders
The typical corporate board of directors has nine members, five of whom are “outsiders”, i.e., “who are not current or former employees, and who do not have dealings with the firm.” When such an outsider suddenly and unexpectedly dies, the stock price falls by about 5% on average, and falls even more if that outsider was not appointed by the current CEO. This 5% number is a (1% significant) estimate after controlling for director quality, by studying 30 directors who were outsiders on some boards, and insiders on other boards. This strongly suggests there are large gains to encouraging more independent firm directors.
Comments on this post are for paid subscribers