Board characteristics and firm resilience: Evidence from disruptive events

Research Question/Issue: We study the contribution of board characteristics such as independence, size, busyness, and CEO duality, to firm resilience at times of firm-specific crises. Research Findings/Insights: Based on manually collected US data, we document that board-related variables affect the short-term market reactions around disruptive events. Board independence exacerbates the negative share price effect, whereas the converse is true for director busyness and board size. However, the negative impact of board independence is attenuated in complex firms. We do not find that CEO duality affects market reactions. By contrast, in the long run, we do not observe stable and significant relationships between board-related variables and firm performance with the exception of a negative impact of board independence. Theoretical/Academic Implications: Our paper contributes to different strands of the literature. First, it contributes to the literature on the effects of board characteristics by showing how they affect stock price reactions at the time of firm-specific crises. Second, our results on board attributes provide a new take on the two monitoring and advisory functions of the board. Third, we add to the literature that measures the value of directors. More generally, the paper contributes to the literature on the role of corporate governance, and in particular the board of directors, in crises situations. Practitioner/Policy Implications: We show that three board-related attributes affect market reactions at the time of a firm-specific shock. Board independence exacerbates the negative share price effect of disruptive events, whereas the reverse is true for director busyness and board size. These reactions imply that, in times of crisis, advice-oriented boards fare better than monitoring-oriented boards. More specifically, information flows less easily within independent boards. In addition, busy directors and large boards are more talented, respectively more effective in complex situations. However, these results do not hold for industry-wide shocks.