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Are Superstar Directors Effective in Corporate Governance?

In this paper, I hand-collected a sample of prestigious business award-winner directors based on the four types of awards discussed by Chen, Wu, and Zhivotova (2017) and use them to represent reputable board of directors. I examine how awardee directors would influence management monitoring effectiveness and corporate governance by testing with CEO compensation level, pay-performance sensitivity, risk-taking behavior, accounting conservatism, and turnover-performance sensitivity. The results show that with award-winner directors sitting in the boards, CEOs receive more incentive compensation, have higher risk-taking incentives, and the firm adopts higher level of accounting conservatism. The findings suggest that reputable directors are effective in performing monitoring and advising duties.