Do Individual Directors Matter? Evidence of Director-Specific Quality

We examine whether directors possess distinct, enduring value-enhancing qualities that extend beyond their immediate fit with a firm's needs. Our empirical approach isolates the portion of a firm's value attributable to time-invariant director-specific effects, thus identifying their unique value-relevant transferable attributes. We use these estimated effects as a measure of director-specific quality (DSQ) and find that DSQ accounts for approximately 10% of the variation in firm value. Providing support that DSQ captures unique value-relevant traits, we find that directors with higher DSQ garner stronger voter support, and investors respond more (less) favorably when they are appointed (die). DSQ correlates with key soft skills often associated with effective directors, including innovativeness, emotional intelligence, analytical acumen, honesty, adaptability, and communication prowess. Firms with higher board-level DSQ demonstrate improved decision making related to mergers and acquisitions, CEO compensation, innovation, and cash management. Analyses exploiting changes in DSQ around director deaths confirm these effects. Our results indicate that directors posses unique value-relevant attributes that are transferable and that DSQ captures both soft and hard skills.