Do Long-Tenured Boards Provide Stability?

While previous literature on corporate board focuses on how board structure affects firm performance, this paper takes a diffrent angle and studies the board's impact onreturn volatility. Using a sample of S&P 1500 firms from 2000 to 2015, we documenta negative relationship between average director tenure and return volatility. To mitigate the endogeneity concern, we also examine return behavior after director deathsand corporate news announcements. Difference-in-differences analysis shows that firmslosing long-tenured directors experience 16.75% higher return volatility when comparedto control firms in the post-event period (12~47 months after director deaths). As forthe mechanisms, we find that long-tenured boards tend to make predictable decisions.These firms have smoother investment patterns and are more likely to promote internalcandidates as CEOs. We also find evidence that analysts forecasts error is smaller for firms with long-tenured directors, suggesting smaller information gap between the firmand the outside analysts. Our paper contributes to the literature by showing that boardcharacteristics affect not only firm performance, but also firm risk.