Director Tenure Diversity and Its Impact on Governance

• In Event: Corporate Governance and Boards of Directors

Abstract

In this study, we examine the impact of director tenure diversity on board effectiveness at executing its main duties. We find that tenure-diverse boards exhibit significantly higher CEO performance-turnover sensitivity, and are more likely to experience a significant increase in market value following CEO replacement. Additionally, such tenure-diverse boards award less excess compensation to their CEOs, have a lower likelihood of accounting restatements, and are more likely to discipline the management conditional on having an accounting restatement. The results seem to indicate that tenure-diverse boards are more diligent at monitoring management, and we interpret these results to suggest that recent calls for board renewal, which could increase tenure diversity, may provide a fruitful avenue for increasing board independence.

Authors

• Na Li, University of Toronto

• Aida Sijamic Wahid, University of Toronto