In this article, we show that exogenous director distraction affects board monitoring intensity and leads to a higher level of inactivity by management. We construct a firm-level director “distraction” measure by exploiting shocks to unrelated industries in which directors have additional directorships. Directors attend significantly fewer board meetings when they are distracted. Firms with distracted board members tend to be inactive and experience a significant decline in firm value. Overall, this article highlights the impact of limited director attention on the effectiveness of corporate governance and the importance of directors in keeping management active.
Bibliographical noteFunding Information:
We thank an anonymous referee, Rajkamal Iyer (editor), Marc Gabarro, Iftekhar Hasan, Mike Qinghao Mao, David S. Thomas, Francisco Urz?a, David Yermack, and seminar participants at Erasmus Research Institute of Management, Tinbergen Institute, Research in Behavioral Finance Conference (2016), and Paris Financial Management Conference (2016) for helpful comments and suggestions.
© 2018 Financial Management Association International