Accounting and Control

Are Directors More Likely to Relinquish Their Riskiest Directorships after the Crisis?

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This paper documents that directors exhibit a strong tendency to resign from their riskiest directorships in the period subsequent to the financial crisis of 2007-2008. Consistent with this pattern, additional evidence suggests that, in the post-crisis period, riskier directorships become more costly for directors. I also find that the post-crisis director turnover alters board characteristics at riskier firms: after the crisis, the riskier boards are formed by directors with relatively less board experience, a smaller network, and fewer academic qualifications. Finally, announcement of departures from riskiest directorships are associated with lower stock returns. Overall, my results suggest that, after the crisis, the costs of serving on risky boards have increased to the point of inducing board turnover and reshaping corporate boards. To the extent that these board changes are not beneficial for shareholders, my findings uncover potential trade-offs in the post-crisis emphasis on risk oversight.
Bibliographic citation: Ormazábal, Gaizka, "Are Directors More Likely to Relinquish Their Riskiest Directorships after the Crisis?", Journal of Corporate Finance, (Forthcoming)
Date: 10/09/2018
Author(s): Ormazábal, Gaizka
Document type: Article in Journal (refereed)
Languages: English