How valuable are independent directors? Evidence from external distractions

By Ronald W. Masulis, E. Zhang. Journal of Financial Economics, 2019

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We provide new evidence on the value of independent directors by exploiting exogenous events that seriously distract independent directors. Approximately 20% of independent directors are significantly distracted in a typical year. They attend fewer meetings, trade less frequently in the firm's stock, and resign from the board more frequently, indicating declining firm-specific knowledge and a reduced board commitment. Firms with more preoccupied independent directors have declining firm valuation and operating performance and exhibit weaker merger and acquisition (M&A) profitability and accounting quality. These effects are stronger when distracted independent directors play key board monitoring roles and when firms require greater director attention.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/3c447e5b52f59dc7c11eeca323b1c18ab0a41af7