Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance

Abstract

Directors from academia served on the boards of around 40% of S&P 1,500 firms over the 1998-2011 period. This paper investigates the effects of academic directors on corporate governance and firm performance. We find that companies with directors from academia are associated with higher performance and this relation is driven by professors without administrative jobs. We also find that academic directors play an important governance role through their advising and monitoring functions. Specifically, our results show that the presence of academic directors is associated with higher acquisition performance, higher number of patents and citations, higher stock price informativeness, lower discretionary accruals, lower CEO compensation, and higher CEO forced turnoverperformance sensitivity. Overall, our results provide supportive evidence that academic directors are valuable advisors and effective monitors and that, in general, firms benefit from having academic directors. JEL Classification: G30; G34; M41

Does Board Ethnic Diversity Impact Board Monitoring Outcomes?

“…Another way to address unobservable timeinvariant firm effects is difference-in-difference analysis (Chen et al, 2016;Francis, Hasan and Wu, 2015). Another way to address unobservable timeinvariant firm effects is difference-in-difference analysis (Chen et al, 2016;Francis, Hasan and Wu, 2015).…”

“…Francis, Hasan and Wu, 2012) and strong monitoring directors created value (Francis, Hasan and Wu, 2015). In constructing our sample, we were unable to identify the ethnicity of all board directors for a substantial proportion of firm year observations [11,699 of 23,911 (49%)], and subsequently excluded these observations, raising the possibility that our results are unrepresentative.…”

“…In the next section we review the potential impacts of board ethnicity on board monitoring and present our hypotheses. 3 Studies have also illustrated the importance of nationality (Frijns, Dodd and Cimerova, 2016;Masulis, Wang and Xie, 2012), financial expertise (Guner, Malmendier and Tate, 2008), political experience (Agrawal and Knoeber, 2001;Goldman, Rocholl and So, 2009) and occupation [CEOs (Fahlenbrach, Low and Stulz, 2010), bankers (Dittman, Maug and Scheider, 2010), academics (Francis, Hasan and Wu, 2015;White et al, 2014) and former CEOs (Fahlenbrach, Minton and Pan, 2011)]. Carter et al (2010) control for the possibility that past performance influences board diversity, but not future performance.…”

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

“…This makes such an ID less likely to aggressively question or disagree with the CEO, who could help support future charitable contributions from the firm. Francis et al () examine IDs who are academics. They find that academic administrators, such as university presidents or deans who are likely to be seeking corporate sponsorships, actually hurt firm performance, while other academic directors who are less conflicted, significantly improve firm performance, measured by ROA and Tobin’s Q .…”

Corporate Philanthropy, Research Networks, and Collaborative Innovation

“…In one recent study of research organizations pursuing industry partnerships, D'Este and Perkmann () provide a discussion as to the reasons that academics engage with industry (and the relative importance of research‐related motives and of commercialization). Additionally, Francis, Hasan, and Wu () note the role of academics on firms’ board of directors, and how their presence is associated with higher levels of innovation.…”