The Labor Market for Directors and Externalities in Corporate Governance

This paper studies how directors' reputational concerns affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance in turn affects firms' demand for new directors. Whether the labor market rewards a shareholde...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of finance (New York) 2016-04, Vol.71 (2), p.775-808
Main Authors: LEVIT, DORON, MALENKO, NADYA
Format: Article
Language:English
Subjects:
Boards of directors
Business entities
Corporate boards
Corporate governance
Directors
Expected utility
Externalities
Externality
Financial management
Labor market
Labor markets
Labour market
Majority voting
Public image management
Reputations
Resignation from office
Shareholders
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper studies how directors' reputational concerns affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance in turn affects firms' demand for new directors. Whether the labor market rewards a shareholder-friendly or management-friendly reputation is determined in equilibrium and depends on aggregate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance across firms. Directors' reputational concerns amplify the governance system: strong systems become stronger and weak systems become weaker. We derive implications for multiple directorships, board size, transparency, and board independence.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12287