The Market for Non‐Executive Directors: Does Acquisition Performance Influence Future Board Seats?

Abstract This paper investigates whether non‐executive directors associated with good (bad) board decisions are subsequently rewarded (penalized) in the market for directors. This question is addressed by assessing whether the post‐acquisition performance of acquiring companies influences the number of non‐executive directorships that non‐executives involved in these acquisitions hold subsequent to the acquisition. We find that non‐executives on the boards of acquirers that increase (omit or cut) their dividend subsequently hold more (fewer) non‐executive directorships in listed companies. Our findings suggest that the non‐executive labour market is efficient and rewards (penalizes) non‐executives for good (bad) acquisitions.