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Research Article

The Relationship between Reasons for Opposing Board Director Candidates and Board Efficiency and Firm Value

Lee, Yuna1 · Lee, Jiyun2

1 Korea Institute of Corporate Governance and Sustainability, 2 Yonsei University

Published: January 2022 · Vol. 51 No. 6 · pp. 1703-1737

DOI: https://doi.org/10.17287/kmr.2022.51.6.1703

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Abstract

We examine the relationship between dissent in director elections and board effectiveness. In our analysis, we categorize reasons for dissenting in board votes into prior irresponsible behavior, lack of independence, lack of past attendance, and serving on multiple board seats. We find that having a director who faced dissent on a board of directors reduces board effectiveness, especially in cases involving inside directors who have prior irresponsible behavior on their records, inside directors who serve on multiple boards, and outside directors who lack independence. Moreover, having a director who faced dissent on a board is negatively associated with corporate value. We also find that having a nominating committee that is composed only of outside directors has a moderating effect on this negative association between dissent in director elections and board effectiveness(firm value). We find similar results in an analysis of proxyvoting advice offered by an advisory firm. Our results suggest the importance of incorporating a wider range of board-member characteristics beyond such commonly used measures as outside director ratios and gender diversity.
Keywords: Director electionsBoard of directorsBoard effectivenessFirm value