Doctoral Dissertations

Date of Award

5-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

Matthew Serfling

Committee Members

Tracie Woidtke, Lauren Cunningham, Scott Guernsey

Abstract

The board of directors plays a crucial role in corporate governance, serving as a vital mechanism to oversee and guide firms towards achieving their goals. Given the importance of boards in the corporate governance framework, we still do not have clear understanding of how directors' characteristics influence the governance and performance of firms. This dissertation ties together two chapters that contribute to this area of research, each focusing on different aspects of directors' influence on corporate governance and firm value.

The first chapter, "The Effect of Director Wealth on Corporate Governance and Firm Value," examines the impact of a director's individual wealth on corporate governance practices and the overall value of the firm. The study reveals that the appointment of wealthy independent directors, defined as those with a net worth exceeding \$5 million, positively correlates with shareholder wealth. It highlights that firms with a greater proportion of wealthy independent directors boast higher Tobin’s Q, enhanced executive incentive structures, superior innovation quality, and improved cash management. This chapter argues that wealthy directors, by virtue of their financial independence, are more capable of resisting managerial pressure, thus fulfilling their advisory and monitoring roles more effectively.

The second chapter, “Unveiling the Role of Director-Specific Quality in Creating Firm Value,” introduces a measure of director-specific quality (DSQ) that captures the unique, transferable, and value-contributory attributes of a director. It finds that directors with higher DSQs receive stronger voter endorsement and positive stock market reactions upon their appointments. Furthermore, firms with high DSQ levels on their boards exhibit improved decision-making processes, especially in areas such as mergers and acquisitions, CEO compensation, innovation, and cash management.

Together, these chapters underscore the multifaceted ways in which the characteristics of board directors, such as wealth and specific quality attributes, contribute to effective corporate governance and enhance firm value. They highlight the importance of considering individual director characteristics in the composition of the board, suggesting a strategic approach to director selection could significantly benefit corporate governance and firm performance.

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