Professors in the Boardroom and their Impact on Corporate Governance and Firm Performance

See on Scoop.itBusiness education @GIBS

Abstract:      
Directors from academia served on the boards of more than one third of S&P 1,500 firms over the 1998-2006 period. This paper investigates the effects of academic directors on corporate governance and firm performance. We find that companies with directors from academia are associated with higher performance. In addition, we find that professors without administrative jobs drive the positive relation between academic directors and firm performance. We also show that professors’ educational backgrounds affect the identified relationship. For example, academic directors with business-related degrees have the most positive impacts on firm performance among all the academic fields considered in our regressions. Furthermore, we show that academic directors play an important governance role through their monitoring and advising functions. Specifically, we find that the presence of academic directors is associated with higher acquisition performance, higher number of patents, higher stock price informativeness, lower discretionary accruals, lower CEO compensation, and higher CEO turnover-performance sensitivity. Overall, our results provide supportive evidence that academic directors are effective monitors and valuable advisors, and that firms benefit from academic directors.

 

The authors: “Our paper is the first to focus entirely on the impact of academic directors on corporate governance and firm performance. Our analysis extends the literature on board characteristics and firm performance. We find that directors from academia are beneficial to shareholders. Our results indicate that both directors’ monitoring and advising functions are important for board efficacy and firm performance. Furthermore, our study complements the board-independence literature by showing that independence is not enough to enhance board efficacy. Additional director attributes, such as advising abilities, could be important for making outside directors more beneficial to firm value. Therefore, this paper furthers our understanding on the relation between board independence and firm value. “

 

 

Source:

 

Professors in the Boardroom and their Impact on Corporate Governance and Firm Performance

 

Bill Francis 
Rensselaer Polytechnic Institute (RPI) – Lally School of Management & Technology

Iftekhar Hasan 
Bank of Finland

Qiang Wu 
Rensselaer Polytechnic Institute (RPI) – Lally School of Management and Technology

February 28, 2013

 

KISs @GIBS‘s insight:

Abstract:  Directors from academia served on the boards of more than one third of S&P 1,500 firms over the 1998-2006 period. This paper investigates the effects of academic directors on corporate governance and firm performance. We find that companies with directors from academia are associated with higher performance. In addition, we find that professors without administrative jobs drive the positive relation between academic directors and firm performance. We also show that professors’ educational backgrounds affect the identified relationship. For example, academic directors with business-related degrees have the most positive impacts on firm performance among all the academic fields considered in our regressions. Furthermore, we show that academic directors play an important governance role through their monitoring and advising functions."

See on papers.ssrn.com

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