Portable Director-Specific Quality

Boards shape the credibility and usefulness of information, but their effectiveness depends on directors who elicit, evaluate, and challenge information supplied by managers. We examine whether directors possess portable, value-relevant attributes that persist across board appointments and influence firms’ information environments and governance outcomes. We develop Director-Specific Quality (DSQ), an individual-director measure of contributions to value distinct from the firms they serve. DSQ explains 9.6 percent of the variation in Tobin’s Q. Investors recognize this component: high-DSQ appointments generate more positive returns, their deaths generate more negative returns, and high-DSQ directors receive greater shareholder support. Higher-DSQ boards have lower analyst forecast errors and dispersion, more informative earnings, greater liquidity, better-aligned managerial incentives, and more effective capital allocation. These outcomes deteriorate following high-DSQ director deaths. Exploratory evidence suggests that DSQ reflects observable expertise and harder-to-measure soft skills, including interpersonal effectiveness, cognitive ability, character strengths, and emotional intelligence.