I propose the fraction of experienced independent directors as an improved measure of board monitoring compared to board independence. Serving as an independent director requires skills to effectively interact with management in a short period of time and obtain information necessary to perform the monitoring duties. Such skills may be obtained through relevant experience, and inexperienced directors may have difficulty until they learn by doing. Based on a sample of nonregulated S&P 1500 firms during 2000-2010, I find that independent directorship experience, measured by the fraction of independent directors who have at least five years of independent director experience in any firm in the past, is a better measure of board quality than the board independence. Independent directorship experience increases firm value for firms operating in a non-competitive industry, where the need for board monitoring is high. I find no evidence that board independence, the traditional measure of board monitoring, has such beneficial influence on firm performance after controlling for the independent directorship experience. Independent directorship experience also increases CEO turnover-performance sensitivity, muting the influence from board independence. While past independent directorship experience is not helpful in setting CEO compensation, past compensation committee experience can significantly reduce total CEO compensation.
Keywords: Board Monitoring, Board Quality, Board Independence, Independent Director, Director Experience, Product Market Competition
JEL classification: G32, G34
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[2014년 제 4차] Experienced Independent Directors
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게시일 :
2014-12-12