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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Financial Expertise of Directors
Organization Unit
Authors
  • Ulrike Malmendier
  • Geoffrey Tate
  • Burak Güner
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Journal of Financial Economics
Publisher Elsevier
Geographical Reach international
ISSN 0304-405X
Volume 88
Number 2
Page Range 323 - 354
Date 2008
Abstract Text We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set, we find that financial experts exert significant influence, though not necessarily in the interest of shareholders. When commercial bankers join boards, external funding increases and investment-cash flow sensitivity decreases. However, the increased financing flows to firms with good credit but poor investment opportunities. Similarly, investment bankers on boards are associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests (e.g., bank profits) are neglected.
Digital Object Identifier 10.1016/j.jfineco.2007.05.009
Other Identification Number merlin-id:5949
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