Does Independent Directors’ CEO Experience Matter?

Review of Finance, Forthcoming

60 Pages Posted: 3 Dec 2012 Last revised: 15 Apr 2017

See all articles by Shinwoo Kang

Shinwoo Kang

Sejong University

E. Han Kim

University of Michigan, Stephen M. Ross School of Business

Yao Lu

Tsinghua University - School of Economics & Management

Date Written: March 31, 2017

Abstract

We find the confluence of CEO-same industry experience makes independent directors particularly helpful in enhancing value-added growth and we identify a channel: guidance toward higher valued-added R&D investments and higher quality innovations. Further corroborating these inferences, we find greater improvement in value-added growth when (1) independent directors with industry-CEO experience (IDICEs) have experience in more similar industries; (2) they create more shareholder value as CEO; and (3) they are current CEOs. In addition, IDICEs contribute to value-added growth most when firm environments and characteristics are conducive for active board-management interaction; namely, when product markets are more competitive and dynamic, when outsiders can more easily acquire firm-specific information, and when firms are younger and smaller. Consistent with our inferences on how IDICEs contribute to value-added growth, firms growing faster, less successfully innovating, and/or under strong governance tend to be matched with IDICEs.

Keywords: Industry-CEO Experience, Board Advising, Value-added Growth, Innovations, R&D Investments

JEL Classification: G34

Suggested Citation

Kang, Shinwoo and Kim, E. Han and Lu, Yao, Does Independent Directors’ CEO Experience Matter? (March 31, 2017). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2184535 or http://dx.doi.org/10.2139/ssrn.2184535

Shinwoo Kang

Sejong University ( email )

209 Neungdong-ro
Gwangjin-gu, Seoul 05006
Korea, Republic of (South Korea)
82-2-3408-3160 (Phone)

E. Han Kim (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-2282 (Phone)
734-763-3117 (Fax)

Yao Lu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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