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Review of Quantitative Finance and Accounting

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01-01-2016 | Original Research

Performance effects of appointing other firms’ executive directors to corporate boards: an analysis of UK firms

Authors: Alexander Muravyev, Oleksandr Talavera, Charlie Weir

Published in: Review of Quantitative Finance and Accounting | Issue 1/2016

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Abstract

This paper studies the effect on company performance of appointing non-executive directors that are also executive directors in other firms. The analysis is based on a new panel dataset of UK companies over 2002–2008. Our findings suggest a positive relation between the presence of these non-executive directors and the accounting performance of the appointing companies. The effect is stronger if these directors are executive directors in firms that are performing well. We also find a positive effect when these non-executive directors are members of the audit committee. Overall, our results are broadly consistent with the view that non-executive directors that are executives in other firms contribute to both the monitoring and advisory functions of corporate boards.

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We thank an anonymous referee for highlighting this point.

In addition to ROE and ROS, we have also examined with return on assets (ROA) and return on capital employed (ROCE). The results are qualitatively similar.

We have also re-estimated our regressions with another measure of Tobin’s Q, calculated as market capitalization divided by book value of the firm’s assets. The estimation results are similar to those reported in the tables below.

We thank the referee for this suggestion.

We have also dropped financial variables and applied different cut-off points for outliers (2 and 5 % instead of 1 %). In all these cases the results are very similar to those reported below.

If there is more than one NXXD then the relative performance measure is the average of the NXXDs relative performance in their firms.

We have also re-estimated our models (2)–(6) using Dynamic Panel Data approach and obtained qualitatively similar results. They are available upon request.

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Title: Performance effects of appointing other firms’ executive directors to corporate boards: an analysis of UK firms
Authors: Alexander Muravyev
Oleksandr Talavera
Charlie Weir
Publication date: 01-01-2016
Publisher: Springer US
Published in: Review of Quantitative Finance and Accounting / Issue 1/2016
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-014-0460-6

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