Abstract
This study investigates whether independent directors’ expertise in the industry in which the firm operates improves board advising through the lens of firm performance following a forced CEO turnover. Using a sample of 134 bank CEO turnovers from 1994 to 2008, I find that the market responds more positively to forced CEO turnover decisions made by a more independent board. In contrast with market reaction, I document that improvements in bank performance following a forced bank CEO turnover are significantly positively related to independent financial expertise on the board. Board independence does not have a similar impact on forced bank CEO turnovers. This is likely because that the advising duty of boards is particularly important when a forced CEO turnover becomes necessary and industry-specific expertise largely improves boards’ ability to advise management.
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