Is prior director experience valuable?

Authors


  • We would like to thank Rachel Fogelman and Monica Loo for their assistance with data collection. This research was partially funded by an AFAANZ Research Grant 2006/7.

Abstract

Previous studies have investigated the effectiveness of directors in performing their monitoring and advising functions by examining characteristics such as independence, qualifications and professional expertise. In this study, we propose a more direct measure of director effectiveness – prior experience as a director. Using hand-collected data from Australia, we find that both the depth (number of prior years) and breadth (number of current directorships) of a new appointee’s director experience is valued by shareholders at appointment. In particular, the market reaction is highest for appointees with the most prior director experience (two or more other current directorships in listed companies and four or more years of director experience) and when experienced appointees join less-experienced boards.

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