Industry Expertise of Independent Directors and Board Monitoring

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

57 Scopus Citations
View graph of relations

Author(s)

  • Cong Wang
  • Fei Xie
  • Min Zhu

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)929-962
Journal / PublicationJournal of Financial and Quantitative Analysis
Volume50
Issue number5
Publication statusPublished - Oct 2015

Abstract

We examine whether the industry expertise of independent directors affects board monitoring effectiveness. We find that the presence of independent directors with industry experience on a firm's audit committee significantly curtails firms' earnings management. In addition, a greater representation of independent directors with industry expertise on a firm's compensation committee reduces chief executive officer (CEO) excess compensation, and a greater presence of such directors on the full board increases the CEO turnover-performance sensitivity and improves acquirer returns from diversifying acquisitions. Overall, the evidence is consistent with the hypothesis that having relevant industry expertise enhances independent directors' ability to perform their monitoring function.