Your PDF has successfully downloaded.

You may be interested in finding more content on these topics:

Access

You are not currently logged in.

Access JSTOR through your library or other institution:

login

Log in through your institution.

Journal Article

Are Some Outside Directors Better than Others? Evidence from Director Appointments by Fortune 1000 Firms

Eliezer M. Fich
The Journal of Business
Vol. 78, No. 5 (September 2005), pp. 1943-1972
DOI: 10.1086/431448
Stable URL: http://www.jstor.org/stable/10.1086/431448
Page Count: 30
Were these topics helpful?
See something inaccurate? Let us know!

Select the topics that are inaccurate.

Cancel
  • Download PDF
  • Add to My Lists
  • Cite this Item
We're having trouble loading this content. Download PDF instead.

Abstract

I analyze 1,493 first‐time director appointments to Fortune 1000 boards, during 1997–99, to investigate whether certain outside directors are better than others. Reactions to director appointments are higher when appointees are CEOs of other companies than when they are not. CEOs are more likely to obtain outside directorships when the companies they head perform well. Well‐performing CEOs are also more likely to gain directorships in organizations with growth opportunities. Because, for these firms, a large portion of their value hinges upon realizing their growth potential, I conclude that CEOs are sought as outside directors to enhance firm value.

Notes and References

This item contains 36 references.

References
  • ['Agrawal, A., and C. Knoeber. 1999. Outside directors, politics, and firm performance. Unpublished manuscript, Culverhouse College of Business, University of Alabama.']
  • ['Altman, Edward I. 1968. Financial ratios, discriminant analysis, and the prediction of corporate bankruptcy. Journal of Finance 23:589–609.']
  • ['Antilla S. 1993. Former Apple chairman causes a stir in new job. New York Times (October 19).']
  • ['Bacon, J., and J. Brown. 1974. Corporate directorships practices: Role, selection and legal status of the board. The Conference Board and the American Society of Corporate Secretaries, Inc., New York.']
  • ['Booth, J. R., and D. N. Deli. 1996. Factors affecting the number of outside directorships held by CEOs. Journal of Financial Economics 40:81–104.']
  • ['———. 1999. On executives of financial institutions as outside directors. Journal of Corporate Finance 5:227–50.']
  • ['Brickley, J. A., J. S. Linck, and J. L. Coles. 1999. What happens to CEOs after they retire? New evidence on career concerns, horizon problems, and CEO incentives. Journal of Financial Economics 52:341–77.']
  • ['Chevalier, J., and G. Ellison. 1999. Are some mutual fund managers better than others? Cross‐sectional patterns in behavior and performance? Journal of Finance 54, no. 3:875–99.']
  • ["De Long, J. B. 1991. Did J.P. Morgan's men add value? An Economist's perspective on financial capitalism. In Inside the business enterprise: Historical perspectives on the use of information, ed. Peter Temin. National Bureau of Economic Research conference report. Chicago: University of Chicago Press."]
  • ['Dodd, P., and J. B. Warner. 1983. On corporate governance: A study of proxy contests. Journal of Financial Economics 11:401–38.']
  • ['Fama, E. F. 1980. Agency problems and the theory of the firm. Journal of Political Economy 88:288–35.']
  • ['Fama, E. F. and M. Jensen. 1983. The separation of ownership and control. Journal of Law and Economics 26:301–25.']
  • ['Ferris, S. P., M. Jagannathan, and A. C. Pritchard. 2003. Too busy to mind the business? Monitoring by directors with multiple board appointments. Journal of Finance 58, no. 3:1087–1111.']
  • ['Gilson, S. 1990. Bankruptcy, boards, banks, and blockholders. Journal of Financial Economics 27:355–87.']
  • ['Hermalin, B., and M. Weisbach. 1988. The determinants of board composition. RAND Journal of Economics 19:589–606.']
  • ['———. 1997. Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review 88:96–118.']
  • ['Hallock, K. 1997. Reciprocally interlocking boards of directors and executive compensation. Journal of Financial and Quantitative Analysis 32, no. 3:331–44.']
  • ['Kaplan, S., and D. Reishus. 1990. Outside directorships and corporate performance. Journal of Financial Economics 27:389–410.']
  • ['Klein, A. 1998. Firm performance and board committee structure. Journal of Law and Economics 41, no. 1:275–303.']
  • ['Kroszner, R. S., and P. E. Strahan. 2001. Bankers on boards: Monitoring, conflicts of interest, and lender liability. Journal of Financial Economics 62:415–52.']
  • ['Laderman, J. M. 1994. The hauls of ivy. Business Week (July 4).']
  • ["Lorsch, J., and E. MacIver. 1989. Pawns or potentates: The reality of America's corporate boards. Boston: Harvard Business School Press."]
  • ['Mace, M. 1986. Directors: Myth and reality. Boston: Harvard Business School Press.']
  • ['Pellet, J. 1998. The great seating debate. Chief Executive 132:40–42.']
  • ['Rajan, R., and L. Zingales. 2000. The governace of the new enterprise. In Corporate governance, ed. X. Vives. Cambridge, MA: Cambridge University Press.']
  • ["Ramirez, C. D. 1995. Did J.P. Morgan's men add liquidity? Corporate investment, cash flow, and financial structure at the turn of the twentieth century. Journal of Finance 2:661–78."]
  • ['Rosen, S. 1981. The economics of superstars. American Economic Review 5:845–58.']
  • ['Rosenstein, S., and J. Wyatt. 1990. Outside directors, board independence, and shareholder wealth. Journal of Financial Economics 26:175–91.']
  • ['———. 1994. Shareholder wealth effects when an officer joins the board of directors of another. Managerial and Decision Economics 15:317–27.']
  • ['Sandler, N., and A. Weintraub. 2000. Nothing mellow at Yellowave. Business Week (October 23):54.']
  • ['Shivdasani, A. 1993. Board composition, ownership structure and hostile takeovers. Journal of Accounting and Economics 16:167–98.']
  • ['Shivdasani, A., and D. Yermack. 1999. CEO involvement in the selection of new board members: An empirical analysis. Journal of Finance 54–55:1829–53.']
  • ['Smith, C. W., and R. L. Watts. 1992. The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics 32, 263–92.']
  • ['Vancil, R. 1987. Passing the baton: Managing the process of CEO succession. Boston: Harvard Business School Press.']
  • ['Westphal, J. D., and E. J. Zajac. 1997. Defections from the inner circle: Social exchange, reciprocity, and the diffusion of board independence in U.S. corporations. Administrative Science Quarterly 42:161–83.']
  • ['Zingales, L. 2000. In search of new foundations. Journal of Finance 55, no. 4:1623–53.']