Director Tenure Diversity and Board Monitoring Effectiveness

Abstract

This study examines the impact of director tenure diversity on board effectiveness. We find that tenure‐diverse boards exhibit significantly higher CEO performance‐turnover sensitivity and that firms with tenure‐diverse audit committees are less likely to experience accounting restatements. Furthermore, we document that tenure‐diverse compensation committees also award less excess compensation and are less likely to overcompensate. Even though tenure‐diverse boards seem to exhibit superior monitoring performance, there is limited evidence that their firms exhibit superior financial performance. The findings suggest that recent calls for board renewal, to the extent that it would increase tenure diversity rather than just decrease average board tenure, may help enhance board monitoring.

Board diversity reforms: Do they matter for EU bank performance?

“…Directors’ average age is 57 years, with the youngest board member being around 36 and the oldest around 70 years old. We capture the overall level of diversity for each board of directors by constructing a bank‐specific board diversity index inspired by Li and Wahid () that relies on the above four aspects of diversity. These variables are converted into discrete score variables based on their respective decile within the sample distribution.…”

The performance effects of board heterogeneity: what works for EU banks?

“…Empirical evidence relating to this type of diversity is limited and the results are mixed. While age diversity may be beneficial, its positive influence rests on the assumption that demographically different directors will hold differing perspectives (Li and Wahid, 2017).…”

“…Our index captures the overall gender, employee representation, internationalisation, and age diversity and is inspired by Li and Wahid (2017) who develop a similar measure in the context of tenure diversity. The construction of the index meets the four criteria that have been laid out for a good diversity measure: (i) it has a zero point to represent complete homogeneity, (ii) it is positively related to diversity, (iii) it does not assume negative values, and (iv) it is bounded.…”

“…In addition to examining each characteristic separately, we aggregate the diversity measures into an index to identify the overall level of board diversity. Following Li and Wahid (2017), we construct an index based on the proportion of women, employees, and international members within each board of directors as well as the extent of age variability, with the aim to capture a board overall diversity (and its changes) at the bank level. Finally, we investigate whether cultural differences at the country level explain at least part of the heterogeneity in the impact of board diversity on the performance of EU banks.…”

Perceptions of shareholders and directors on corporate governance: what we learn about director primacy

“…For example, audit committee chairs may be captured by management through friendships and social ties (Sharma and Iselin, ). Finally, a third category of research demonstrates advantages to having diversity of tenure on boards, for example, Li and Wahid ().…”