Why corporate board insiders still matter: Evidence using aggregate earnings shocks

Shibashish Mukherjee*, H. Jelle M. Bonestroo

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)
38 Downloads (Pure)


Corporate governance research lacks clarity on why, when, and what types of firms appoint non-CEO board insiders because of the primary academic focus on board independence. While executive monitoring is relevant, it is equally salient to understand why firms appoint non-CEO insiders to the boards. This concern is especially relevant when firms face financial difficulties during periods of macro hardship. Using the corporate socialization theory, we suggest that board insiders likely generate firm-specific private information by utilizing their long-tenured firm-focused corporate experience. It would result in a unique form of non-fungible expertise that firms would find valuable during macro hardships. Employing a difference-in-difference research design, consistent with our theory, we document that when firms experience a cross-country macro hardship such as an aggregate earnings shock, they appoint long-tenured and firm-focused non-CEO board insiders. We further show that financially distressed firms have a higher demand for such directors.

Original languageEnglish
Pages (from-to)500-520
Number of pages21
JournalEuropean Management Review
Issue number4
Publication statusPublished - Dec 2021

Bibliographical note

Funding Information:
We thank Desislava Dikova, the editor of European Management Review, and the anonymous referees for their help, insight and guidance during the review process. We thank Steven Boivie, Niels Hermes, Chun-Keung (Stan) Hoi, Swarnodeep Homroy, Reggy Hooghiemstra, Abe de Jong, Esha Mendiratta, and Mariateresa Torchia (EURAM discussant) for their comments and suggestions. We also thank the 2020 AIB Online conference, 2018 EURAM conference (Reykjavik, Iceland) participants for their comments and suggestions. The paper was the finalist of the ?Temple/AIB Best Paper Award? at the 2020 AIB Online conference. 9th Financial Markets and Corporate Governance Conference, The La Trobe Business School, Melbourne, Australia, shortlisted the paper for the ?Best Paper in Corporate Governance/Social Responsibility? award (the authors withdrew the paper due to travel visa issues). The University of Groningen's Library Department provided access to BoardEx and Worldscope databases. We acknowledge their assistance with gratitude. We circulated an earlier version of this paper with the title ?Board Composition Paradox: Are Board Insiders Valued Advisers or Harbingers of Agency-Cost?? Usual disclaimers apply.

Publisher Copyright:
© 2021 The Authors. European Management Review published by John Wiley & Sons Ltd on behalf of European Academy of Management (EURAM).


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