Does personal liability deter individuals from serving as independent directors?

Naaraayanan, L and Nielsen, K M (2021) Does personal liability deter individuals from serving as independent directors? Journal of Financial Economics, 140 (2). pp. 621-643. ISSN 0304-405X OPEN ACCESS

Abstract

This study examines whether personal liability for corporate malfeasance deters individuals from serving as independent directors. After the introduction of personal liability in India, we find that individuals are deterred from serving on corporate boards. We find stronger deterrence among firms with greater litigation and regulatory risk, higher monitoring costs, and weak monetary incentives. Expert directors are more likely to exit, resulting in 1.16% lower firm value. We further evaluate whether contemporaneous corporate governance reforms and market developments contribute to this deterrence. Overall, our results suggest that personal liability deters individuals with high reputational costs from serving as independent directors.

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Item Type: Article
Subject Areas: Finance
Additional Information:

© 2020 Elsevier. This manuscript version is made available under the Creative Commons CC-BY-NC-ND 4.0 licence https://creativecommons.org/licenses/by-nc-nd/4.0/

Date Deposited: 29 Oct 2020 17:39
Date of first compliant deposit: 22 Oct 2020
Subjects: India
Directors
Liabilities
Last Modified: 21 Nov 2024 02:46
URI: https://lbsresearch.london.edu/id/eprint/1515
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