Undervaluation of directors in the board hierarchy: Impact on turnover of directors (and CEOs) in newly public firms

• 成果类型: Article
• 署名作者: Garg, Sam; Li, Qiang (John); Shaw, Jason D.
• 署名单位: Hong Kong University of Science & Technology; Hong Kong Polytechnic University
• 刊物名称: STRATEGIC MANAGEMENT JOURNAL
• ISSN/ISSBN: 0143-2095
• DOI: 10.1002/smj.2716
• 发表日期: 2018
• 页码: 429-457
• 关键词: board leadership structure; Board of directors; hierarchy; JUSTICE; turnover

摘要

Research summary: We examine the consequences of the formalization of the board leadership structure at IPO for board-level turnover. We introduce the concept of director undervaluation. It indicates the degree to which a director's qualifications based on normatively accepted criteria for board leadership are not duly reflected in his/her appointments to the board chair and committee chair positions. We find that the higher the average undervaluation of directors on the board (board undervaluation), the greater the turnover levels of undervalued directors. This effect is stronger when board interaction frequency is higher. We contribute to the behavioral perspective on corporate governance by introducing justicebased legitimacy as a key normative institution, and by providing a novel predictor of aggregate turnover of directors (as well as the firm's CEO). Managerial summary: Why do outside directors exit the board? We offer a novel answer to this question in the context of newly public firms. We suggest that when directors are passed over for the board chair and committee chair positions despite having higher qualifications than their peers, they have been undervalued, and a negative board climate is likely to develop. We find that the higher the average undervaluation of directors on the board, the higher the turnover levels of these undervalued directors. More frequent board meetings exacerbate these turnover levels. Further, these turnover effects are not restricted to undervalued directors-even the CEO is more likely to exit. This study demonstrates the critical importance of developing a legitimate and fair board leadership structure.