Abstract
The policy reforms on disclosure of individual skills and the increasing number of studies focusing on individual attributes of CEOs and directors have motivated research exploring the skill of directors. In this study, we are examining the benefit of director skill and firm performance. This study answers whether the skill generality or skill specialty is beneficial to the firm. We employ the multidimensional category of skill variable for director and CEO on the Taiwan stock market. The empirical result shows that executives and board members with higher educational backgrounds, expertise, and experiences contribute to higher firm performance and lower firm risks. Furthermore, we also find that generalist skill in directors is associated with better firm performance and firm risk.
Highlights
Recent literature addresses the increasing importance of the individual skills of CEOs and board directors
Current empirical findings are inconsistent, and the question of whether the skill generality or skill specialty is beneficial to the firm is still controversial
This study examines the benefit of multidimensional director skill on firm performance and risk
Summary
Recent literature addresses the increasing importance of the individual skills of CEOs and board directors. Kaplan and Klebanov (2012) and Custódio et al (2013) use factor analysis to extract different dimensions of directors’ skills to examine commonalities in CEO characteristics They find that some firms appoint directors with different skills to their board, whereas others focus on the same kills. Li & Patel (2019) suggest that firm generalist is associated with a lower level of performance, especially for CEO in longer tenure Inspired by these works, this study examines how the generalist or specialist CEOs’ /directors’ individual skills impact corporate outcomes. Using 2006-2014 data and proxy statements of Taiwan listed non-financial firms, this research decomposes CEO and director individual skills into three dimensions—education background, professional expertise, and prior experience—to answer the questions: Are CEOs/directors with higher education, greater professional expertise, more prior experiences, or greater skill generality associated with better corporate performance and reduced risks.
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