The Characteristics of the Directors

  • Ettore Croci


This chapter discusses directors’ attributes such as social ties , reputation , geographic proximity, and expertise . The concept of independence needs to encompass social ties and connections to be effective. Directors vary according to their reputation and respond to reputation incentive s, especially when an efficient labor market for directors exists. Despite the available technologies, the geographical proximity of directors to a firm’s headquarters still provides an advantage when decisions are based on soft information . Firms often add experts to their boards. While industry expertise and specific expertise have on average a positive effect on firm value, the evidence about financial expertise is less clear. For bank s, financial expertise is associated with more risk-taking. Overall, directors are a very heterogeneous group, with diverse backgrounds, characteristics, and incentive s.


Social ties Geographic proximity Reputation Incentive Expertise Skill 


  1. Adams, R. B. (2017). Boards, and the directors who sit on them (chapter 6). In B. E. Hermalin & M. S. Weisbach (Eds.), The handbook of the economics of corporate governance (Vol. 1, pp. 291–382). New York: North-Holland. Google Scholar
  2. Adams, R. B., Akyol, A. C., & Verwijmeren, P. (2018). Director skill sets. Journal of Financial Economics. CrossRefGoogle Scholar
  3. Adams, R. B., & Ferreira, D. (2008). Do directors perform for pay? Journal of Accounting and Economics, 46(1), 154–171. CrossRefGoogle Scholar
  4. Agarwal, S., Qian, W., Reeb, D. M., & Sing, T. F. (2016). Playing the boys game: Golf buddies and board diversity. American Economic Review, 106(5), 272–276. CrossRefGoogle Scholar
  5. Akbas, F., Meschke, F., & Wintoki, M. B. (2016). Director networks and informed traders. Journal of Accounting and Economics, 62(1), 1–23. CrossRefGoogle Scholar
  6. Alam, Z. S., Chen, M. A., Ciccotello, C. S., & Ryan, H. E. (2014). Does the location of directors matter? Information acquisition and board decisions. Journal of Financial and Quantitative Analysis, 49(1), 131–164. CrossRefGoogle Scholar
  7. Alam, Z. S., Chen, M. A., Ciccotello, C. S., & Ryan, H. E. (forthcoming). Board structure mandates: Consequences for director location and financial reporting. Management Science. CrossRefGoogle Scholar
  8. Black, B. S., Cheffins, B. R., & Klausner, M. (2006). Outside director liability: A policy analysis. Journal of Institutional and Theoretical Economics/Zeitschrift für die gesamte Staatswissenschaft, 162(1), 5–20. Google Scholar
  9. Bouwman, C. H. S. (2011). Corporate governance propagation through overlapping directors. The Review of Financial Studies, 24(7), 2358–2394. /oup/backfile/content_public/journal/rfs/24/7/10.1093_rfs_hhr034/2/hhr034.pdf CrossRefGoogle Scholar
  10. Brochet, F., & Srinivasan, S. (2014). Accountability of independent directors: Evidence from firms subject to securities litigation. Journal of Financial Economics, 111(2), 430–449. CrossRefGoogle Scholar
  11. Cai, J., Nguyen, T., & Walkling, R. A. (2017). Director appointments —It is who you know. In 28th Annual Conference on Financial Economics and Accounting.Google Scholar
  12. Cai, Y., & Sevilir, M. (2012). Board connections and M&A transactions. Journal of Financial Economics, 103(2), 327–349. CrossRefGoogle Scholar
  13. Celikyurt, U., Sevilir, M., & Shivdasani, A. (2014). Venture capitalists on boards of mature public firms. The Review of Financial Studies, 27(1), 56–101. /oup/backfile/content_public/journal/rfs/27/1/10.1093_rfs_hhs096/4/hhs096.pdf CrossRefGoogle Scholar
  14. Coles, J. L., Daniel, N. D., & Naveen, L. (2014). Co-opted boards. The Review of Financial Studies, 27(6), 1751–1796. /oup/backfile/content_public/journal/rfs/27/6/10.1093_rfs_hhu011/1/hhu011.pdf CrossRefGoogle Scholar
  15. Cornelli, F., Kominek, Z., & Ljungqvist, A. (2013). Monitoring managers: Does it matter? The Journal of Finance, 68(2), 431–481. CrossRefGoogle Scholar
  16. Coval, J. D., & Moskowitz, T. J. (1999). Home bias at home: Local equity preference in domestic portfolios. The Journal of Finance, 54(6), 2045–2073. CrossRefGoogle Scholar
  17. Coval, J. D., & Moskowitz, T. J. (2001). The geography of investment: Informed trading and asset prices. Journal of Political Economy, 109(4), 811–841. CrossRefGoogle Scholar
  18. Dass, N., Kini, O., Nanda, V., Onal, B., & Wang, J. (2014). Board expertise: Do directors from related industries help bridge the information gap? The Review of Financial Studies, 27(5), 1533–1592. /oup/backfile/content_public/journal/rfs/27/5/10.1093_rfs_hht071/3/hht071.pdf CrossRefGoogle Scholar
  19. Dittmann, I., Maug, E., & Schneider, C. (2010). Bankers on the boards of German firms: What they do, what they are worth, and why they are (still) there. Review of Finance, 14(1), 35–71. /oup/backfile/content_public/journal/rof/14/1/10.1093/rof/rfp007/2/rfp007.pdf CrossRefGoogle Scholar
  20. Dou, Y. (2017). Leaving before bad times: Does the labor market penalize preemptive director resignations? Journal of Accounting and Economics, 63(2), 161–178. CrossRefGoogle Scholar
  21. Dow, J. (2013). Boards, CEO entrenchment, and the cost of capital. Journal of Financial Economics, 110(3), 680–695. CrossRefGoogle Scholar
  22. Drobetz, W., von Meyerinck, F., Oesch, D., & Schmid, M. (2018). Industry expert directors. Journal of Banking & Finance, 92, 195–215. CrossRefGoogle Scholar
  23. Ertimur, Y., Ferri, F., & Maber, D. A. (2012). Reputation penalties for poor monitoring of executive pay: Evidence from option backdating. Journal of Financial Economics, 104(1), 118–144. CrossRefGoogle Scholar
  24. Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside directors? Journal of Financial Economics, 97(1), 12–32. CrossRefGoogle Scholar
  25. Fahlenbrach, R., Low, A., & Stulz, R. M. (2017). Do independent director departures predict future bad events? The Review of Financial Studies, 30(7), 2313–2358. /oup/backfile/content_public/journal/rfs/30/7/10.1093_rfs_hhx009/3/hhx009.pdf CrossRefGoogle Scholar
  26. Fahlenbrach, R., Minton, B. A., & Pan, C. H. (2011). Former CEO directors: Lingering CEOs or valuable resources? The Review of Financial Studies, 24(10), 3486–3518. /oup/backfile/content_public/journal/rfs/24/10/10.1093_rfs_hhr056/2/hhr056.pdf CrossRefGoogle Scholar
  27. Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288–307. CrossRefGoogle Scholar
  28. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301–325. CrossRefGoogle Scholar
  29. Ferreira, M. A., & Matos, P. (2012). Universal banks and corporate control: Evidence from the global syndicated loan market. The Review of Financial Studies, 25(9), 2703–2744. /oup/backfile/content_public/journal/rfs/25/9/10.1093_rfs_hhs076/1/hhs076.pdf CrossRefGoogle Scholar
  30. Fich, E. M., & Shivdasani, A. (2007). Financial fraud, director reputation, and shareholder wealth. Journal of Financial Economics, 86(2), 306–336. CrossRefGoogle Scholar
  31. Field, L., Lowry, M., & Mkrtchyan, A. (2013). Are busy boards detrimental? Journal of Financial Economics, 109(1), 63–82. CrossRefGoogle Scholar
  32. Field, L. C., & Mkrtchyan, A. (2017). The effect of director experience on acquisition performance. Journal of Financial Economics, 123(3), 488–511. CrossRefGoogle Scholar
  33. Fos, V., & Tsoutsoura, M. (2014). Shareholder democracy in play: Career consequences of proxy contests. Journal of Financial Economics, 114(2), 316–340. CrossRefGoogle Scholar
  34. Giannetti, M., Liao, G., & Yu, X. (2015). The brain gain of corporate boards: Evidence from China. The Journal of Finance, 70(4), 1629–1682. CrossRefGoogle Scholar
  35. Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? The Review of Financial Studies, 22(6), 2331–2360. /oup/backfile/content_public/journal/rfs/22/6/10.1093_rfs_hhn088/1/hhn088.pdf CrossRefGoogle Scholar
  36. Guner, A. B., Malmendier, U., & Tate, G. (2008). Financial expertise of directors. Journal of Financial Economics, 88(2), 323–354. CrossRefGoogle Scholar
  37. Harford, J. (2003). Takeover bids and target directors’ incentives: The impact of a bid on directors’ wealth and board seats. Journal of Financial Economics, 69(1), 51–83. CrossRefGoogle Scholar
  38. Harford, J., & Schonlau, R. J. (2013). Does the director labor market offer ex post settling-up for CEOs? The case of acquisitions. Journal of Financial Economics, 110(1), 18–36. CrossRefGoogle Scholar
  39. Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. The American Economic Review, 88(1), 96–118; Google Scholar
  40. Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7–26.Google Scholar
  41. Houston, J. F., Lee, J., & Suntheim, F. (2018). Social networks in the global banking sector. Journal of Accounting and Economics, 65(2), 237–269. CrossRefGoogle Scholar
  42. Huang, Q., Jiang, F., Lie, E., & Yang, K. (2014). The role of investment banker directors in M&A. Journal of Financial Economics, 112(2), 269–286. CrossRefGoogle Scholar
  43. Hwang, B. H., & Kim, S. (2009). It pays to have friends. Journal of Financial Economics, 93(1), 138–158. CrossRefGoogle Scholar
  44. Ishii, J., & Xuan, Y. (2014). Acquirer-target social ties and merger outcomes. Journal of Financial Economics, 112(3), 344–363. CrossRefGoogle Scholar
  45. Jiang, W., Wan, H., & Zhao, S. (2016). Reputation concerns of independent directors: Evidence from individual director voting. The Review of Financial Studies, 29(3), 655–696. /oup/backfile/content_public/journal/rfs/29/3/10.1093_rfs_hhv125/2/hhv125.pdf
  46. Kim, E. H., & Lu, Y. (2018). Executive suite independence: Is it related to board independence? Management Science, 64(3), 1015–1033.
  47. Knyazeva, A., Knyazeva, D., & Masulis, R. W. (2013). The supply of corporate directors and board independence. The Review of Financial Studies, 26(6), 1561–1605. /oup/backfile/content_public/journal/rfs/26/6/10.1093_rfs_hht020/2/hht020.pdf CrossRefGoogle Scholar
  48. Kramarz, F., & Thesmar, D. (2013). Social networks in the boardroom. Journal of the European Economic Association, 11(4), 780–807. CrossRefGoogle Scholar
  49. Kuhnen, C. M. (2009) Business networks, corporate governance, and contracting in the mutual fund industry. The Journal of Finance, 64(5), 2185–2220. CrossRefGoogle Scholar
  50. Larcker, D.F., So, E. C., & Wang, C. C. (2013). Boardroom centrality and firm performance. Journal of Accounting and Economics, 55(2), 225–250. CrossRefGoogle Scholar
  51. Laux, V. (2010). Effects of litigation risk on board oversight and CEO incentive pay. Management Science, 56(6), 938–948. CrossRefGoogle Scholar
  52. Lee, J., Lee, K. J., & Nagarajan, N. J. (2014). Birds of a feather: Value implications of political alignment between top management and directors. Journal of Financial Economics, 112(2), 232–250. CrossRefGoogle Scholar
  53. Lel, U., & Miller, D. P. (2015). Does takeover activity cause managerial discipline? Evidence from international M&A laws. The Review of Financial Studies, 28(6), 1588–1622. /oup/backfile/content_public/journal/rfs/28/6/10.1093_rfs_hhv002/4/hhv002.pdf CrossRefGoogle Scholar
  54. Levit, D., & Malenko, N. (2016). The labor market for directors and externalities in corporate governance. The Journal of Finance, 71(2), 775–808. CrossRefGoogle Scholar
  55. Linck, J. S., Netter, J. M., & Yang, T. (2009). The effects and unintended consequences of the Sarbanes-Oxley Act on the supply and demand for directors. The Review of Financial Studies, 22(8), 3287–3328. /oup/backfile/content_public/journal/rfs/22/8/10.1093_rfs_hhn084/2/hhn084.pdf CrossRefGoogle Scholar
  56. Liu, Y. (2014). Outside options and CEO turnover: The network effect. Journal of Corporate Finance, 28, 201–217. Inside the Board Room. CrossRefGoogle Scholar
  57. Lorsch, J. W., & MacIver, E. (1989). Pawns or potentates: The reality of America’s corporate boards. Cambridge: Harvard Business School Press.Google Scholar
  58. Mace, M. L. (1971). Directors: Myth and reality. Cambridge: Harvard Business School Publications, Division of Research, Graduate School of Business Administration, Harvard University.Google Scholar
  59. Malenko, N. (2014). Communication and decision-making in corporate boards. The Review of Financial Studies, 27(5), 1486–1532. /oup/backfile/content_public/journal/rfs/27/5/10.1093_rfs_hht075/3/hht075.pdf CrossRefGoogle Scholar
  60. Masulis, R. W., & Mobbs, S. (2014). Independent director incentives: Where do talented directors spend their limited time and energy? Journal of Financial Economics, 111(2), 406–429. CrossRefGoogle Scholar
  61. Masulis, R. W., Wang, C., & Xie, F. (2012). Globalizing the boardroom: The effects of foreign directors on corporate governance and firm performance. Journal of Accounting and Economics, 53(3), 527–554. CrossRefGoogle Scholar
  62. Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(2), 351–380. CrossRefGoogle Scholar
  63. Mobbs, S. (2015). Is an outside chair always better? The role of non-CEO inside chairs on corporate boards. Financial Review, 50(4), 547–574. CrossRefGoogle Scholar
  64. Nguyen, B. D. (2012). Does the Rolodex matter? Corporate elite’s small world and the effectiveness of boards of directors. Management Science, 58(2), 236–252. CrossRefGoogle Scholar
  65. Perry, T., & Peyer, U. (2005). Board seat accumulation by executives: A shareholder’s perspective. The Journal of Finance, 60(4), 2083–2123. CrossRefGoogle Scholar
  66. Ryan, H. E., & Wiggins, R. A. (2004). Who is in whose pocket? Director compensation, board independence, and barriers to effective monitoring. Journal of Financial Economics, 73(3), 497–524. CrossRefGoogle Scholar
  67. Santos, J. A., & Rumble, A. S. (2006). The American keiretsu and universal banks: Investing, voting and sitting on nonfinancials’ corporate boards. Journal of Financial Economics, 80(2), 419–454. CrossRefGoogle Scholar
  68. Souther, M. E. (forthcoming). The effects of internal board networks: Evidence from closed-end funds. Journal of Accounting and Economics. CrossRefGoogle Scholar
  69. Stein, J. C. (2002). Information production and capital allocation: Decentralized versus hierarchical firms. The Journal of Finance, 57(5), 1891–1921. CrossRefGoogle Scholar
  70. Stuart, T. E., & Yim, S. (2010). Board interlocks and the propensity to be targeted in private equity transactions. Journal of Financial Economics, 97(1), 174–189. CrossRefGoogle Scholar
  71. von Meyerinck, F., Oesch, D., & Schmid, M. (2016). Is director industry experience valuable? Financial Management, 45(1), 207–237. CrossRefGoogle Scholar
  72. White, J. T., Woidtke, T., Black, H. A., & Schweitzer, R. L. (2014). Appointments of academic directors. Journal of Corporate Finance, 28, 135–151. Inside the Board Room. CrossRefGoogle Scholar
  73. Yermack, D. (2004). Remuneration, retention, and reputation incentives for outside directors. The Journal of Finance, 59(5), 2281–2308. CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ettore Croci
    • 1
  1. 1.Università Cattolica del Sacro CuoreMilanoItaly

Personalised recommendations