We investigate contributions of independent directors to shareholder value by examining stock price reactions to sudden deaths in the US from 1994 to 2007. We find, first, that following director death stock prices drop by 0.85% on average. Second, the degree of independence and board structure determine the marginal value of independent directors. Third, independence is more valuable in crucial board functions. Finally, controlling for director-invariant heterogeneity using a fixed effect approach, we identify the value of independence over and above the value of individual skills and competences. Overall, our results suggest that independent directors provide a valuable service to shareholders.

To enforce insider trading laws, financial regulators require top executives to make their own-company trades public. One implication of this regulatory focus is that executives below the top fly under the radar. We use administrative register data from Norway to examine whether executives below the top in listed companies earn abnormal returns on purchases in own-company stock. We find evidence of abnormal returns on such trades, about 50 to 100 basis points at the 1-month horizon. The abnormal returns on purchases in other stocks are negative, making high investor ability an unlikely explanation.

This study examines whether personal liability for corporate malfeasance deters individuals from serving as independent directors. After the introduction of personal liability in India, we find that individuals are deterred from serving on corporate boards. We find stronger deterrence among firms with greater litigation and regulatory risk, higher monitoring costs, and weak monetary incentives. Expert directors are more likely to exit, resulting in 1.16% lower firm value. We further evaluate whether contemporaneous corporate governance reforms and market developments contribute to this deterrence. Overall, our results suggest that personal liability deters individuals with high reputational costs from serving as independent directors.

We study whether personal experiences are so powerful that they make individuals actively shy away from risk. Our research design relies on portfolio decisions relating to inheritances, which alter the active decision from one of choosing to take risk to one of choosing to reduce risk. Experience derives from investments in banks that defaulted following the 2007–2009 financial crisis. We classify experiences into first-hand experiences, resulting from personal losses; second-hand experiences, from losses of family members; and third-hand experiences, from locations where banks defaulted. Our results demonstrate that experiences gained personally, not common shocks, make individuals shy away from risk.

We test whether forecast bias affects household stock trading by combining measures of bias elicited in laboratory experiments with administrative trade-level data. On average, subjects exhibit positive forecast bias (i.e., extrapolators), while a large minority exhibit negative forecast bias (i.e., contrarians). Forecast bias is positively associated with past excess returns of stocks that are purchased: Extrapolators (contrarians) purchase past winners (losers). Forecast bias is negatively associated with the capital gains of stocks that are sold. Furthermore, forecast bias explains investor heterogeneity in the relation between market returns and net flows to stocks. Overall, our study provides evidence of a common mechanism – forecast bias – that links past returns to trading decisions for purchases, sales, and net flows.