Deterrence for Independent Directors and Corporate Boards: Evidence from a Natural Experiment

Chakrabarti, R and Krishnamurthy, V S (2012) Deterrence for Independent Directors and Corporate Boards: Evidence from a Natural Experiment. Working Paper. Indian School of Business, Hyderabad. (Unpublished)

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Abstract

We study the effect of the personal liabilities faced/perceived by independent directors (IDs) on ID entry and exit decisions, board composition and monitoring. Since Directors and Officers insurance changes with the risk of personal liabilities, studying this question is difficult. We examine this question using an unexpected, high-profile corporate governance (CG) failure in India, which increased the risk of personal liability. We find that, in contrast to CG failures in the U.S. in 2001, IDs exited in large numbers thereby decreasing the percentage and quality of IDs on boards. On the flipside, the increased deterrence stemming from greater risk of personal liability enhanced ID monitoring.

ISB Creators:
ISB CreatorsORCiD
Chakrabarti, RUNSPECIFIED
Krishnamurthy, V SUNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Board of Directors, Corporate Governance Failure, Executive Directors, Independent Directors, Internal Governance
Subjects: Corporate Governance
Depositing User: LRC ISB
Date Deposited: 21 Oct 2014 06:57
Last Modified: 20 Nov 2014 12:19
URI: http://eprints.exchange.isb.edu/id/eprint/9
Publisher URL: http://www.isb.edu/faculty-research/research/worki...
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