Do Independent Director Departures Predict Future Bad Events?

Rüdiger Fahlenbrach; Angie Low; René M. Stulz

doi:10.1093/rfs/hhx009

Do Independent Director Departures Predict Future Bad Events?

Rüdiger Fahlenbrach¹; Angie Low²; René M. Stulz³

¹ Ecole Polytechnique Fédérale de Lausanne (EPFL), Swiss Finance Institute, and ECGI · ² Nanyang Business School, Nanyang Technological University, Singapore · ³ Fisher College of Business, The Ohio State University, NBER, and ECGI ,

Review of Financial Studies 2017 open access

Following surprise independent director departures, affected firms have worse stock and operating performance, are more likely to restate earnings, face shareholder litigation, suffer from an extreme negative return event, and make worse mergers and acquisitions. The announcement returns to surprise director departures are negative, suggesting that the market infers bad news from surprise departures. We use exogenous variation in independent director departures triggered by director deaths to test whether surprise independent director departures cause these negative outcomes or whether an anticipation of negative outcomes is responsible for the surprise director departure. Our evidence is more consistent with the latter. Received January 12, 2016; editorial decision October 7, 2016 by Editor David Denis.

DOI: 10.1093/rfs/hhx009
Volume: 30 (7)
Pages: 2313-2358
Language: en
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