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Does the Location of Directors Matter? Information Acquisition and Board Decisions

Published online by Cambridge University Press:  04 March 2014

Zinat S. Alam ,
Mark A. Chen ,
Conrad S. Ciccotello  and
Harley E. Ryan Jr.
Zinat S. Alam
Affiliation:
[email protected], College of Business, Florida Atlantic University, 777 Glades Rd, Boca Raton, FL 33431
Mark A. Chen
Affiliation:
[email protected], Robinson College of Business, Georgia State University, 35 Broad St, Atlanta, GA 30303.
Conrad S. Ciccotello
Affiliation:
[email protected], Robinson College of Business, Georgia State University, 35 Broad St, Atlanta, GA 30303.
Harley E. Ryan Jr.
Affiliation:
[email protected], Robinson College of Business, Georgia State University, 35 Broad St, Atlanta, GA 30303.
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Abstract

Using data on over 4,000 individual residential addresses, we find that geographic distance between directors and corporate headquarters is related to information acquisition and board decisions. The fraction of a board’s unaffiliated directors who live near headquarters is higher when information-gathering needs are greater. When the fraction of unaffiliated directors living near headquarters is lower, nonroutine chief executive officer (CEO) turnover is more sensitive to stock performance. Also, the level, intensity, and sensitivity of CEO equity-based pay increase with board distance. Overall, our results suggest that geographic location is an important dimension of board structure that influences directors’ costs of gathering information.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 1 , February 2014 , pp. 131 - 164
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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