Andrew Lund — The Harvard Law School Forum on Corporate Governance and Financial Regulation

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Do Outside Directors Face Labor Market Consequences?

Posted by Steven Davidoff, Ohio State University College of Law, on Friday February 1, 2013 at 10:10 am

Tags: Andrew Lund, Boards of Directors, Financial Crisis, Robert Schonlau, Steven Davidoff

Editor’s Note: Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law, Andrew Lund is an Associate Professor of Law at Pace University School of Law and Robert J. Schonlau is an Assistant Professor of Finance at Brigham Young University.

Do directors face consequences for their poor performance? We examine this question in Do Outside Directors Face Labor Market Consequences? A Natural Experiment from the Financial Crisis, a draft of which we recently posted to the SSRN.

We theorize that the exogenous shock of the financial crisis made shareholders and regulators particularly attuned to financial firm performance. We thus use the financial crisis as a natural experiment to study labor market consequences for outside directors at banks and other financial companies. In particular, we explore the question of whether shareholders and regulators acted to penalize directors for poor firm performance during the financial crisis.
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