NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Liping Ma

Naveen Jindal School of Management
University of Texas at Dallas
Richardson, TX 75080

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NBER Working Papers and Publications

January 2014Powerful Independent Directors
with Kathy Fogel, Randall Morck: w19809
Shareholder valuations are economically and statistically positively correlated with independent directors’ power, gauged by social network power centrality. Powerful independent directors’ sudden deaths reduce shareholder value significantly; other independent directors’ deaths do not. More powerful independent directors Granger cause higher valuations; the converse is not true. Further tests associate more powerful independent directors with less value-destroying M&A, less free cash flow retention, more CEO accountability, and less earnings management. We posit that more powerful independent directors better detect and counter CEO missteps because of better access to information, greater credibility in challenging errant top managers, or both.
 
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