Independent Director Reputation Incentives: The Supply of Monitoring Services

Extensive research finds that shareholder and CEO preferences affect demand for director services. We find a large body of evidence that independent director reputation incentives influence the supply of director services. These reputation incentives vary across firms and over time, significantly influencing important board decisions and firm outcomes. When more independent directors highly rank a directorship, firms experience fewer actions that hurt and more actions that enhance shareholder wealth and director reputation. These results are invariant to endogeneity adjustments. We conclude that director reputation affects board decisions and shareholder value by influencing director allocation of effort across their multiple directorships.