Are Directors Rewarded for Excellence? Evidence from Reputation Shocks and Career Outcomes

Abstract

Abstract This study examines whether the labor market rewards directors for individual excellence. We use national director awards to capture large, positive shocks to individual reputation. We find strong evidence that the labor market recognizes and rewards “superstar” directors. Award events lead to positive announcement returns and increase awardees’ chances of gaining new board seats at prestigious firms. Consistent with theories of career concerns and labor market signaling, the reputational effects are greater for younger directors and for nonoverboarded directors. Overall, our findings offer new insights into the nature of reputation and rewards in the upper echelon of the director labor market. (JEL G30, G34, G39) Received August 15, 2020; editorial decision May 11, 2021 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.