How valuable are independent directors? Evidence from external distractions

Director attention and firm value

“…As our study focuses on temporary distractions, this analysis could add to the evidence in Masulis and Zhang () that permanently distracted directors are replaced. The estimation results indicating whether temporarily distracted directors are more likely to be replaced in the next year are presented in Table , in which the dependent variable equals one when a director is replaced the next year.…”

“…Our identification scheme studies director attention while isolating the potential confounding effects resulting from changes to directors’ appointments or to interlocked firms’ boards. Masulis and Zhang () study director attention by examining distraction events such as director illness and winning prestigious awards and finds that these distracting events lower firm value. It is comforting to know that the effects of these specific shocks are in line with the effects of the more general source of director distraction that we study.…”

A Survey of Recent Evidence on Boards of Directors and CEO Incentives

“…Masulis and Zhang () study a large range of exogenous ID distractions. They test whether these ID distractions undercut the effectiveness of their monitoring and whether this leads to weaker firm performance and poorer board decisions.…”

“…These negative performance effects are stronger when distracted IDs have important monitoring duties (i.e., committee chairs). Masulis and Zhang () provide several other important takeaways. First, they find no similar effects when they investigate distracted affiliated (gray) directors, suggesting that they do not serve a valuable monitoring function.…”

Do CEOs' Outside Directorships Affect the Performance of Their Own Firms?

“…Knyazeva, Knyazeva, and Masulis (2013) use a supply-based instrumental variable for board independence, and find that board independence has a positive effect on firm value, operating performance, fraction of CEO incentive-based pay, and CEO turnover. Masulis and Zhang (2018) exploit exogenous events that sharply distract independent directors and find that these distraction events lead to declining firm valuation.…”