Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/77316
Title: Undervaluation of directors in the board hierarchy : impact on turnover of directors (and CEOs) in newly public firms
Authors: Garg, S
Li, QJ
Shaw, JD 
Keywords: Board leadership structure
Board of directors
Hierarchy
Justice
Turnover
Issue Date: 2018
Publisher: John Wiley & Sons
Source: Strategic management journal, 2018, v. 39, no. 2, p. 429-457 How to cite?
Journal: Strategic management journal 
Abstract: Research summary: We examine the consequences of the formalization of the board leadership structure at IPO for board-level turnover. We introduce the concept of director undervaluation. It indicates the degree to which a director’s qualifications based on normatively accepted criteria for board leadership are not duly reflected in his/her appointments to the board chair and committee chair positions. We find that the higher the average undervaluation of directors on the board (“board undervaluation”), the greater the turnover levels of undervalued directors. This effect is stronger when board interaction frequency is higher. We contribute to the behavioral perspective on corporate governance by introducing justice-based legitimacy as a key normative institution, and by providing a novel predictor of aggregate turnover of directors (as well as the firm’s CEO). Managerial summary: Why do outside directors exit the board? We offer a novel answer to this question in the context of newly public firms. We suggest that when directors are passed over for the board chair and committee chair positions despite having higher qualifications than their peers, they have been “undervalued,” and a negative board climate is likely to develop. We find that the higher the average undervaluation of directors on the board, the higher the turnover levels of these undervalued directors. More frequent board meetings exacerbate these turnover levels. Further, these turnover effects are not restricted to undervalued directors—even the CEO is more likely to exit. This study demonstrates the critical importance of developing a legitimate and fair board leadership structure.
URI: http://hdl.handle.net/10397/77316
ISSN: 0143-2095
EISSN: 1097-0266
DOI: 10.1002/smj.2716
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