Recent surveys show that 24% of independent directors in Russel 3,000 rms have continuously served on their boards for fteen years or more. Based on a sample of S&P 1500 fi rms over the period 1998-2012, we show that long-tenure directors improve fi rm performance, largely determined by only one director exhibiting an abnormally long tenure. In fi rms where one independent director has served on the board for 20 years or more we document strong positive effects on fi nancial performance. The different channels include: (1) Long-tenured directors protect the firm and other board members from corporate scandals, (2) Long-tenured independent directors appear to be highly skilled individuals that over time accumulate information and knowledge that is valuable to the companies they serve in, even when the cost of acquiring information is high. Our results have material implications for the ongoing debate and recent trends on setting tenure limits for outside directors.
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|Paper||pdf (it, 292 KB, 01/04/16)|
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