Working Paper: CEPR ID: DP15828
Authors: Audinga Baltrunaite; Egle Karmaziene
Abstract: We examine how the size of the labor market for corporate directors impacts board appointments in Italian private firms. Using the high-speed railway expansion as an exogenous shock to costs of serving on boards, we find that an increase in the supply of non-local directors leads to a higher degree of positive assortative matching between firms and directors. High-quality firms improve their board quality at the expense of low-quality firms. The director-firm matching effects are muted among companies with owners acting as board directors. This finding highlights the importance of director entrenchment in the corporate governance of private firms.
Keywords: director supply; board of directors; match quality
JEL Codes: G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonlocal supply of directors (L39) | positive assortative matching between directors and firms (G34) |
| positive assortative matching between directors and firms (G34) | board quality of high-quality firms (L15) |
| positive assortative matching between directors and firms (G34) | board quality of low-quality firms (L15) |
| nonlocal supply of directors (L39) | director-firm fit (L20) |
| director-firm fit (L20) | firm growth (L26) |
| director-firm fit (L20) | firm productivity (D22) |
| nonlocal supply of directors (L39) | reduction in family ties on boards (G34) |
| improved board quality (L15) | higher revenues (H27) |
| improved board quality (L15) | total factor productivity (D24) |
| improved board quality (L15) | lower probability of default (G33) |