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Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance
Author(s) -
Dou Ying,
Sahgal Sidharth,
Zhang Emma Jincheng
Publication year - 2015
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12091
Subject(s) - corporate governance , chief executive officer , accounting , business , control (management) , earnings , officer , term (time) , quality (philosophy) , executive compensation , finance , economics , management , political science , philosophy , physics , epistemology , quantum mechanics , law
We examine the role of independent directors with extended tenure in board‐level governance, monitoring decisions, and advising outcomes. These directors exhibit a higher level of commitment as they attend more board meetings and take more committee memberships. Firms with a higher proportion of these directors have lower chief executive officer (CEO) pay, higher CEO turnover‐performance sensitivity, and a smaller likelihood of intentionally misreporting earnings. These firms also restrict the expansion of resources under the CEO's control as they are less likely to make acquisitions, while the acquisitions they do make are of higher quality. Efforts to impose term limits on directors may, therefore, be misguided.