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Director Connectedness: Monitoring Efficacy and Career Prospects

Published online by Cambridge University Press:  14 February 2018

Vincent J. Intintoli ,
Kathleen M. Kahle  and
Wanli Zhao
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Abstract

We examine a specific channel through which director connectedness may improve monitoring: financial reporting quality. We find that the connectedness of independent, non-co-opted audit committee members has a positive effect on financial reporting quality and accounting conservatism. The effect is not significant for non-audit committee or co-opted audit committee members. Our results are robust to tests designed to mitigate self-selection. Consistent with connected directors being valuable, the market reacts more negatively to the deaths of highly connected directors than to the deaths of less connected directors. Better connected directors also have better career prospects, suggesting they have greater incentives to monitor.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 1 , February 2018 , pp. 65 - 108
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank Jeffrey Coles (associate editor and referee) and Jarrad Harford (the editor) for their helpful suggestions. We also thank Renee Adams, Amir Barnea, David Becher, Alice Bonaimé, Luke DeVault, Ionnis Floros, Vladimir Gatchev, Samir Ghannam, Ivan Gloris, Daniel Greene, Sandy Klasa, Jayanthi Krishnan, Brandon Lockhart, Angie Low, David Mauer, Angela Morgan, Tom Omer, David Reeb, Matthew Serfling, Rick Sias, Johan Sulaeman, Jayanthi Sunder, Rong Wang, Mike Weisbach, Jack Wolf, Ryan Williams, Fei Xie, and Bernard Yeung; seminar participants at Clemson University, Iowa State University, Nanyang Technological University, and National University of Singapore; and conference participants at the 2015 American Accounting Association (AAA) annual meeting, the 2015 Financial Management Association (FMA) annual meeting, the 28th Australasian Finance and Banking Conference (AFBC), and the 2016 China International Conference in Finance (CICF) for useful comments. An earlier version of this paper was titled “Board Effectiveness and Board Connectedness.”

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