Shawn Mobbs

Supply and Demand for Independent Director Services: Major Board Decisions and Corporate Outcomes

Extensive research finds that shareholder and CEO preferences affect demand for director services. We find a large body of evidence that independent director reputation incentives influence the supply of director services. These reputation incentives vary across firms and over time, significantly influencing important board decisions and firm outcomes. When more independent directors highly rank a directorship, firms experience fewer actions that hurt and more actions that enhance shareholder wealth and director reputation. These results are invariant to endogeneity adjustments. We conclude that director reputation affects board decisions and shareholder value by influencing director allocation of effort across their multiple directorships.

Do Directors Learn From Forced CEO Turnover Experience

We study the dynamic relation between experience and monitoring. We find independent directors become more diligent monitors after experiencing a forced CEO turnover event in another firm. Specifically, their subsequent forced CEO turnover decisions are more sensitive to firm performance and are based upon more private information. The results hold when we only use experience acquired from other firms after the director joined the current firm and when we include director and firm fixed effects. Hence, our results are not driven by firm-director matching or innate director traits. We also find that such experience has important director labor market implications.

Independent Directors and Corporate Litigation

In this paper, we examine the effects of board structure on a wide variety of corporate litigation. We use a unique hand-collected dataset of corporate law suits and the 2002 NYSE/NASDAQ exchange listing requirements, as an exogenous shock to board independence, to empirically examine the monitoring effectiveness of board independence using a difference-in-difference framework. We find that an increase in board independence is associated with a significant reduction in multiple types of corporate litigation, beyond shareholder class action lawsuits. While this evidence is consistent with stronger monitoring by independent directors we also find evidence that greater board independence can inhibit a board’s ability to monitor internal actions. Specifically, we find evidence that mandatory increases in board independence, which reduces a board’s knowledge of firm-specific information, can make a firm more susceptible to product liability, employment and labor litigation. The evidence is consistent with the greater monitoring role independent directors provide, but also their limitations when it comes to monitoring in firms where firm-specific information is more important.

Is an Outside Chair Always Better? The Role of Non‐CEO Inside Chairs on Corporate Boards

Proponents of separating the CEO and chairman positions advocate having an outside chairperson, although having an inside chairperson can be valuable for some firms. I find inside chairs are more likely where firm-specific human capital is more important and, in these firms, inside chairs are associated with higher firm valuation and better operating performance. Furthermore, skilled inside chairs increase forced CEO turnover sensitivity to performance. The evidence suggests that certain inside chairs can be valuable when firm-specific information is important for monitoring and an outside chair may be costly.

How Does Forced CEO Turnover Experience Affect Directors

We study the dynamic relation between experience and monitoring. We find independent directors become more diligent monitors after experiencing a forced CEO turnover event in another firm. Specifically, their subsequent forced CEO turnover decisions are more sensitive to firm performance and are based upon more private information. The results hold when we only use experience acquired from other firms after the director joined the current firm and when we include director and firm fixed effects. Hence, our results are not driven by firm-director matching or innate director traits. We also find that such experience has important director labor market implications.

Learning from Forced CEO Turnover Experience

We study the dynamic relation between experience and monitoring. We find independent directors become more diligent monitors after experiencing a forced CEO turnover event in another firm. Specifically, their subsequent forced CEO turnover decisions are more sensitive to firm performance and are based upon more private information. The results hold when we only use experience acquired from other firms after the director joined the current firm and when we include director and firm fixed effects. Hence, our results are not driven by firm-director matching or innate director traits. We also find that such experience has important director labor market implications.

CEO Selection and Executive Appearance

Using an objective measure of executive facial attractiveness we find that shareholders value beauty. Specifically, more attractive executives are associated with a higher abnormal return around the announcement of their appointment as CEO. These findings are strongest for insider appointments and relatedly, more attractive facial features increase the likelihood of an executive winning a tournament and being selected as CEO. We also find that facial beauty is more important when there is a larger pool of qualified candidates with similar tangible skills and it is less important in firms where unique or technical skills are more valuable. Lastly, we find some evidence that females are held to a higher standard of beauty than males. These results indicate that beauty is an important executive trait that has significant labor market implications. JEL classification: G30, G32, G34, G35We use an impartial scientific-based measure of executive facial attractiveness and find that being more attractive increases the likelihood of winning a CEO tournament. Attractiveness is most influential when there is a large pool of similarly qualified candidates. New CEO attractiveness is associated with improved long-run performance through the channel of increased sales. More attractive inside executives are associated with higher abnormal returns around their CEO selection announcement. Finally, we discover evidence that females are held to a higher standard of beauty. In sum, facial attractiveness is an important executive trait with significant labor market and corporate finance implications.