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Determinants of Director Turnover
Sharad Asthana, University of Texas - San Antonio
Steven Balsam, Temple University
ABSTRACT. In this paper we provide evidence that director turnover is influenced by a series of economic factors, both retrospective and prospective, and that these factors differentially affect inside and outside directors. Directors are more likely to leave when firm performance deteriorates and the firm becomes riskier. While turnover increasing as firm performance deteriorates is consistent with involuntary turnover, we also find directors are also more likely to leave in advance of deteriorating performance. The latter is consistent with directors having insider information and acting upon that information to protect their wealth and reputation. When we contrast inside and outside director turnover, we find the association between turnover and changes in performance and risk is greater for inside directors. This finding is consistent with under-diversified inside director’s having more of their wealth and reputation tied to the firm than outside directors.
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