Do Outside Directors with Government Experience Create Value?

Abstract

We examine whether outside directors with government experience add value to their firms. Wefind that government directors are more likely to miss board meetings and that their appointmentannouncements are greeted more negatively. Firms with government directors also experiencepoorer operating performance and more negative merger announcement returns, although theirmergers are less likely to be challenged by antitrust authorities. These adverse valuation effectsare largely alleviated when firms have large government sales, when they operate in regulatedindustries, or when government directors are politically connected. Using close gubernatorialelection outcomes as a natural experiment and an instrumental variables approach to control forendogeneity bias do not change the results. Show more