Post by Sapphire Capital on Aug 29, 2008 23:25:38 GMT 4
Financial Expertise of Directors
A. Burak Guner
Barclays Global Investors
Ulrike Malmendier
University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Geoffrey A. Tate
University of California, Los Angeles
Journal of Financial Economics (JFE), Vol. 88, No. 2, pp. 323-354, May 2008
Abstract:
We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set, we find that financial experts exert significant influence, though not necessarily in the interest of shareholders. When commercial bankers join boards, external funding increases and investment-cash flow sensitivity decreases. However, the increased financing flows to firms with good credit but poor investment opportunities. Similarly, investment bankers on boards are associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests (e.g., bank profits) are neglected.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1235104
A. Burak Guner
Barclays Global Investors
Ulrike Malmendier
University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Geoffrey A. Tate
University of California, Los Angeles
Journal of Financial Economics (JFE), Vol. 88, No. 2, pp. 323-354, May 2008
Abstract:
We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set, we find that financial experts exert significant influence, though not necessarily in the interest of shareholders. When commercial bankers join boards, external funding increases and investment-cash flow sensitivity decreases. However, the increased financing flows to firms with good credit but poor investment opportunities. Similarly, investment bankers on boards are associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests (e.g., bank profits) are neglected.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1235104