When Do Outside Directors Create Corporate Value?

44 Pages Posted: 3 Nov 2006

See all articles by Juan Santaló

Juan Santaló

Fundación Instituto de Empresa, S.L. - IE Business School

Luis Diestre

University of Southern California - Marshall School of Business

Date Written: May 2006

Abstract

This paper shows that the proportion of outside (nonmanagement) directors is related to positive corporate performance only when corporate antitakeover protection is low. We interpret these results as evidence that the threat of termination of the directorship through the risk of a disciplining takeover is a powerful mechanism to align the interests of outside directors and shareholders. We find out that the negative effect on the incentives of outsiders seems to be driven by those provisions that are used to delay hostile takeover attempts and by those state laws that make harder the success of takeovers.

Keywords: Corporate Governance, directors, board composition, directors' incentives, market of corporate control

JEL Classification: G34, K22

Suggested Citation

Santalo, Juan and Diestre, Luis, When Do Outside Directors Create Corporate Value? (May 2006). Available at SSRN: https://ssrn.com/abstract=942045 or http://dx.doi.org/10.2139/ssrn.942045

Juan Santalo (Contact Author)

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid
Spain

Luis Diestre

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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