10 Nov 2016Working Paper Summaries

Managing Reputation: Evidence from Biographies of Corporate Directors

by Ian D. Gow, Aida Sijamic Wahid, and Gwen Yu
A biography is part of a proxy statement summarizing a director’s past experience. For this study the authors analyzed almost 160,000 biographies of 12,895 directors to see how directors appear to make strategic disclosure choices about their past and current experience in biographies. Directors are less likely to disclose past and current directorships at firms that experienced adverse events such as accounting restatements, securities litigation, or bankruptcy. Directors who withhold information about adverse-event directorships experience a more favorable stock price reactions at appointment and lose fewer current directorships in the two years after the filing relative to the directors who disclose. However, there is no evidence that non-disclosure leads to different shareholder voting outcomes.

Author Abstract

We examine how corporate directors manage reputation through disclosure choices in biographies in proxy statements filed with the SEC. Directors are more likely to withhold information about directorships at firms that experienced adverse events. Withholding such information is associated with more favorable stock price reactions at appointment and loss of fewer subsequent directorships. Nondisclosure of directorships is significantly reduced following changes to SEC rules, with the greatest change being for adverse-event directorships. These findings suggest that reputation concerns of corporate directors lead to strategic disclosure choices that have real consequences in both capital and labor markets.

Paper Information

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