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    The shareholder wealth effects of an executive joining another company's board

    151319_151319.pdf (85.33Kb)
    Access Status
    Open access
    Authors
    Byrd, J.
    Martin, L.
    Rath, Subhrendu
    Date
    2010
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Byrd, John and Martin, L. Ann and Rath, Subhrendu. 2010. The shareholder wealth effects of an executive joining another company's board. The International Journal of Managerial Finance. 6 (1): pp. 48-57.
    Source Title
    The International Journal of Managerial Finance
    DOI
    10.1108/17439131011015788
    ISSN
    1743-9132
    School
    School of Economics and Finance
    Remarks

    The definitive version is available from Emerald Group Publishing Limited

    URI
    http://hdl.handle.net/20.500.11937/21424
    Collection
    • Curtin Research Publications
    Abstract

    Purpose: The purpose of this paper is to examine the impact of high-level executives joining the Board of another US company on the shareholder wealth of the firms in which these executives work. Design/methodology/ approach: The "event-study" methodology is used first to estimate the shareholder effects and then, through multivariate regression analysis, establish a relationship of these effects with executive characteristics. Findings: The paper documents that the abnormal return becomes more positive the closer the executive is to retirement and more negative as the number of other corporate Boards the executive already sits on increases. Unlike previous research, it is not found that prior performance of the employing company helps explain the cross-sectional variation in the announcement day abnormal returns. Research limitations/implications: The result supports the concerns of shareholder activists that key executives joining the Boards of other companies do their home shareholders a disservice by being spread too thin. It supports the hypothesis that investors interpret a CEO joining the Board of another firm as value decreasing. Originality/value : The paper provides a link between managerial labor and shareholder wealth. Important and high-level-executives, while attempting to enhance their own personal benefits by joining other Boards, can destroy shareholder value of the company for which they work.

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