Essays on the Monitoring Role of Corporate Boards
This dissertation contains two essays that study the monitoring role played by corporate boards. The first essay provides a new perspective to the multiple directorships literature, which focuses on outside directors. Inside directors, however, are important both in the boardroom and day-to-day operations of the firm. I find that any negative effect of director busyness is more pervasive for inside directors than for outside directors. Additional analysis reveals that bidding firms' acquisition announcement returns are decreasing in inside director board appointments, but there is no such effect for outside directors. These results highlight the importance of inside directors and demonstrate that firm performance can be compromised when they sit on multiple boards.In the second essay, I identify a sample of firms with directors employed by institutional investors and directly examine the effect of institutional monitoring. Using difference-in-differences tests, I find no evidence that institutional directors improve corporate governance or informational efficiency. However, institutional monitoring has a significantly positive effect on long-term stock returns. I also find that institutional monitoring is negatively associated with Tobin's Q. Further analysis of corporate policies shows that institutional monitoring leads to reduction in capital expenditure and R&D but increase in payouts. The findings suggest that institutional directors urge firms to reduce possibly value-decreasing investments, thus lower Tobin's Q, and return value to investors.