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Who Chooses Board Members?

Advances in Financial Economics

ISBN: 978-1-78350-120-5

Publication date: 9 December 2013



To explore the importance of the board of director nomination process (that is, who nominates a given director for a position on the firm’s board) for the voting outcomes, disciplining of management, and overall monitoring quality of the board of directors.


We exploit a recent regulation passed by the US Securities and Exchange Commission (SEC) requiring disclosure of the board nomination process. In particular, we focus on firms’ use of executive search firms versus allowing internal members (often simply the CEO) to nominate new directors to serve on the board of directors.


We show that companies that use search firms to find board members pay their CEOs significantly higher salaries and significantly higher total compensations. Further, companies with search firm-identified independent directors are significantly less likely to fire their CEOs following negative performance. In addition, companies with search firm-identified independent directors are significantly more likely to engage in mergers and acquisitions (M&A) and see abnormally low returns from this M&A activity. We instrument the endogenous choice of using an executive search through the varying geographic distance of companies to executive search firms. Using this instrumental variable framework, we show search firm-identified independent directors’ negative impact on firm performance, consistent with firm behavior and governance consequences we document.


Given the recent law passage, we are the first to directly analyze the nomination process, and show a surprisingly large predictive effect of seemingly arm’s-length nominations. This has clear implications for thinking carefully through how independence is defined in the director nomination process.




We thank Renée Adams, Chris Malloy, Ron Masulis, Patrick Verwijmeren, and David Yermack, seminar participants at the University of Adelaide, the University of Melbourne, York University, and participants at the 2012 University of Delaware Corporate Governance Symposium for helpful comments and suggestions. We also thank Mark Spencer Wallis and Sonya Lai for excellent research assistance. We are grateful for funding from the National Science Foundation and the University of Melbourne.


Akyol, A.C. and Cohen, L. (2013), "Who Chooses Board Members?", Advances in Financial Economics (Advances in Financial Economics, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 43-77.



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