February 2014

IZA DP No. 7962: Performance Effects of Appointing Other Firms' Executive Directors to Corporate Boards: An Analysis of UK Firms

Alexander Muravyev, Oleksandr Talavera, Charlie Weir

published in: Review of Quantitative Finance and Accounting, 2016, 46(1), 25-45

This paper studies the effect on company performance of appointing non-executive directors that are also executive directors in other firms. The analysis is based on a new panel dataset of UK companies over 2002-2008. Our findings suggest a positive relationship between the presence of these non-executive directors and the accounting performance of the appointing companies. The effect is stronger if these directors are executive directors in firms that are performing well. We also find a positive effect when these non-executive directors are members of the audit committee. Overall, our results are broadly consistent with the view that non-executive directors that are executives in other firms contribute to both the monitoring and advisory functions of corporate boards.