Religiosity, Higher Purpose, and the Effectiveness of Intense Board Oversight

Abstract

Using a novel measure, we study how the personal religiosity (or sense of higher purpose) of independent directors affects the effectiveness of their intense board oversight. We find that, relative to their non-religious counterparts, religious monitoring-intensive directors exhibit significantly lower sensitivity of CEO turnover to firm performance over a holding period of 1 year. However, for the more extended holding period of 2 years, this difference in sensitivity significantly switches direction, consistent with the “higher purpose, incentives, and economic performance” theory, which suggests that believers in higher purpose will tend to hold a longer-term perspective. We also find that religious monitoring-intensive directors further reduce both earnings management and excess total CEO compensation, especially when the lead independent director and/or a majority of the principal monitoring committee chairs are also religious. Overall, our findings show that religious monitoring-intensive directors differentially influence intense board oversight results and, thereby, help infuse or propagate a corporate culture consistent with an authentic organizational higher purpose.