Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-05T06:23:54.519Z Has data issue: false hasContentIssue false
  • English
  • Français

Activist-Appointed Directors

Published online by Cambridge University Press:  27 September 2021

Jun-Koo Kang Open the ORCID record for Jun-Koo Kang [Opens in a new window] ,
Hyemin Kim ,
Jungmin Kim  and
Angie Low
Jun-Koo Kang*
Affiliation:
Nanyang Technological University Nanyang Business School
Hyemin Kim
Affiliation:
Hanyang University School of Business Division of Financehyeminkim@hanyang.ac.kr
Jungmin Kim
Affiliation:
The Hong Kong Polytechnic University School of Accounting and Financejungmin.kim@polyu.edu.hk
Angie Low
Affiliation:
Nanyang Technological University Nanyang Business Schoolaaclow@ntu.edu.sg
*
jkkang@ntu.edu.sg (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the value impact of independent directors nominated by activists (Activist IDs). Firms appointing Activist IDs experience larger value increases than firms appointing other directors, particularly when Activist IDs have private firm experience and when their nominators remain as shareholders. This value increase persists over a long period and is greater than that of activism events without director appointments. The increase is also higher among firms with greater monitoring needs and entrenched boards. Moreover, the appointments of Activist IDs are greeted more positively by the market, and Activist IDs obtain more favorable shareholder votes and additional future directorships.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1343 - 1376
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are grateful to Jarrad Harford (the editor), Alexander Ljungqvist, Shawn Mobbs (the referee), Kasper Nielsen, seminar participants at Australian National University, Fudan University, Hong Kong Polytechnic University, Monash University, and Nanyang Business School, and conference participants at the 2013 International Conference on Asia Pacific Financial Markets, the 2014 Asian Finance Association Conference, and the 2014 Asian Bureau of Finance and Economics Research (ABFER) Conference for their useful comments. H. Kim acknowledges financial support from Hanyang University (HY-202100000002903). The article was previously circulated under the title “Rookie Directors.” All errors are our own.

References

Akyol, A. C., and Cohen, L.. “Who Chooses Board Members?” Advances in Financial Economics, 16 (2013), 43–75.CrossRefGoogle Scholar
Bamford, T. E.; Daum, J. H.; and Vaidya, M.. “Recruiting the First-Time Director.” Available at https://www.spencerstuart.com/-/media/pdf-files/research-and-insight-pdfs/pov13_firsttimedir.pdf (2013).Google Scholar
Bebchuk, L. A.; Brav, A.; and Jiang, W.. “The Long-Term Effects of Hedge Fund Activism.” Columbia Law Review, 115 (2015), 1085–1155.Google Scholar
Bernile, G.; Bhagwat, V.; and Yonker, S.. “Board Diversity, Firm Risk, and Corporate Policies.” Journal of Financial Economics, 127 (2018), 588–612.CrossRefGoogle Scholar
Biddle, G. C.; Hilary, G.; and Verdi, R. S.. “How Does Financial Reporting Quality Relate to Investment Efficiency?” Journal of Accounting and Economics, 48 (2009), 112–131.CrossRefGoogle Scholar
Brav, A.; Jiang, W.; and Kim, H.. “The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes.” Review of Financial Studies, 28 (2015), 2723–2769.CrossRefGoogle Scholar
Brav, A.; Jinag, W.; Partnoy, F.; and Thomas, R.. “Hedge Fund Activism, Corporate Governance, and Firm Performance.” Journal of Finance, 63 (2008), 1729–1775.CrossRefGoogle Scholar
Bushee, B. J., and Noe, C. F.. “Corporate Disclosure Practices, Institutional Investors, and Stock Return Volatility.” Journal of Accounting Research, 38 (2000), 171–202.CrossRefGoogle Scholar
Cai, J.; Garner, J. L.; and Walkling, R. A.. “Electing Directors.” Journal of Finance, 64 (2009), 2389–2421.CrossRefGoogle Scholar
Chen, X.; Harford, J.; and Li, K.. “Monitoring: Which Institutions Matter?” Journal of Financial Economics, 86 (2007), 279–305.CrossRefGoogle Scholar
Chen, G.; Kang, J.-K.; Kim, J.-M.; and Na, H.-S.. “Sources of Value Gains in Minority Equity Investments by Private Equity Funds: Evidence from Block Share Acquisitions.” Journal of Corporate Finance, 29 (2014), 449–474.CrossRefGoogle Scholar
Chen, L., and Moers, F.. “The Market for Independent Directors.” Corporate Governance: An International Review, 26 (2018), 429–447.CrossRefGoogle Scholar
Coles, J. L.; Daniel, N. D.; and Naveen, L.. “Co-Opted Boards.” Review of Financial Studies, 27 (2014), 1751–1796.CrossRefGoogle Scholar
Cremers, M.; Giambona, E.; Sepe, S. M.; and Wang, Y.. “Hedge Fund Activism and Long-Term Firm Value.” Working Paper, available at https://papers.ssrn.com/sol3/Papers.cfm?abstractid=2693231 (2020).Google Scholar
Custódio, C.; Ferreira, M. A.; and Matos, P.. “Generalists Versus Specialists: Lifetime Work Experience and Chief Executive Officer Pay.” Journal of Financial Economics, 108 (2013), 471–492.CrossRefGoogle Scholar
Custódio, C., and Metzger, D.. “How Do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns.” Review of Financial Studies, 26 (2013), 2008–2047.CrossRefGoogle Scholar
Denes, M. R.; Karpoff, J. M.; and McWilliams, V. B.. “Thirty Years of Shareholder Activism: A Survey of Empirical Research.” Journal of Corporate Finance, 44 (2017), 405–424.CrossRefGoogle Scholar
Engelberg, J.; Gao, P.; and Parsons, C. A.. “The Price of a CEO’s Rolodex.” Review of Financial Studies, 26 (2013), 79–114.CrossRefGoogle Scholar
Fahlenbrach, R.; Low, A.; and Stulz, R. M.. “Why Do Firms Appoint CEOs as Outside Directors?” Journal of Financial Economics, 97 (2010), 12–32.CrossRefGoogle Scholar
Fahlenbrach, R.; Low, A.; and Stulz, R. M.. “Do Independent Director Departures Predict Future Bad Events?” Review of Financial Studies, 30 (2017), 2313–2358.CrossRefGoogle Scholar
Faleye, O.; Hoitash, R.; and Hoitash, U.. “The Costs of Intense Board Monitoring.” Journal of Financial Economics, 101 (2011), 160–181.CrossRefGoogle Scholar
Fracassi, C., and Tate, G.. “External Networking and Internal Firm Governance.” Journal of Finance, 67 (2012), 153–194.CrossRefGoogle Scholar
Goodwin, S.; Singh, A.; Slipetz, W.; and Rao, R. P.. “Myopic Investor Myth Debunked: The Long-Term Efficacy of Shareholder Advocacy in the Boardroom.” Working Paper, Oklahoma State University (2014).CrossRefGoogle Scholar
Huang, S., and Hilary, G.. “Zombie Board: Board Tenure and Firm Performance.” Journal of Accounting Research, 56 (2018), 1285–1329.CrossRefGoogle Scholar
Javakhadze, D.; Ferris, S. P.; and French, D. W.. “Social Capital, Investments, and External Financing.” Journal of Corporate Finance, 37 (2016), 38–55.CrossRefGoogle Scholar
Kaplan, S. N., and Strömberg, P.. “Leveraged Buyouts and Private Equity.” Journal of Economic Perspectives, 23 (2009), 121–146.CrossRefGoogle Scholar
Knyazeva, A.; Knyazeva, D.; and Masulis, R. W.. “The Supply of Corporate Directors and Board Independence.” Review of Financial Studies, 26 (2013), 1561–1605.CrossRefGoogle Scholar
Lerman, A., and Livnat, J.. “The New Form 8-K Disclosures.” Review of Accounting Studies, 15 (2010), 752–778.CrossRefGoogle Scholar
Linck, J. S.; Netter, J. M.; and Yang, T.. “The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors.” Review of Financial Studies, 22 (2009), 3287–3328.CrossRefGoogle Scholar
Masulis, R. W., and Mobbs, S.. “Are All Inside Directors the Same? Evidence from the External Directorship Market.” Journal of Finance, 66 (2011), 823–872.CrossRefGoogle Scholar
Myers, R. “First-Time Directors Rev Up.” Corporate Board Member, Sept./Oct 2008. Available at http://www.cristkolder.com/press/CBM_SeptOct08.pdf (2008).Google Scholar
Phillips, K. W.; Liljenquist, K. A.; and Neale, M. A.. “Is the Pain Worth the Gain? The Advantages and Liabilities of Agreeing with Socially Distinct Newcomers.” Personality and Social Psychology Bulletin, 35 (2009), 336–350.CrossRefGoogle ScholarPubMed
Shivdasani, A., and Yermack, D.. “CEO Involvement in the Selection of New Board Members: An Empirical Analysis.” Journal of Finance, 54 (1999), 1829–1853.CrossRefGoogle Scholar
Yermack, D. “Remuneration, Retention, and Reputation Incentives for Outside Directors.” Journal of Finance, 59 (2004), 2281–2308.CrossRefGoogle Scholar