After the Storm: The “Unregulated” Effect of a Corporate Governance Failure on the Market for Directors

We investigate how a major corporate governance failure affects the market for corporate directors. Using a unique, hand-collected dataset of individual director and board characteristics for more than 2,500 Indian public companies, we examine the effect of a corporate governance failure at India’s fourth largest software company, Satyam Computers in January 2009, on corporate boards in other Indian firms. The failure increased risks stemming from being an independent director in Indian firms. Consistent with this supply-side shock in the market for independent directors (IDs), we find that following the fiasco: (i) IDs exited in large numbers from other Indian firms resulting in an overall decrease in the percentage of IDs in corporate boards; (ii) the quality of IDs, as measured by their educational qualifications and professional experience, declined; (iii) director compensation, in particular fixed compensation, increased.