The Shareholder Wealth Effects of an Executive Joining Another Company’s Board

Using a sample of 104 announcements of a high-level executive (Chairman, Vice-Chairman, CEO or President) joining the board of another company from 1985 through 1997, we find a negative announcement date stock response of about one-half of one percent for the firm for which the executive works. This stock price response is larger (more negative) than that found by Rosenstein and Wyatt (1994) during an earlier sample period. Regression analysis shows that the abnormal return becomes more positive the closer the executive is to retirement and more negative as the number of other corporate boards the executive already sits on increases. These results hold for sub-samples of just CEOs and just Chairmen. Unlike Rosenstein and Wyatt (1994) we do not find that prior performance of the employing company, either market-adjusted or industry-adjusted, helps explain the cross-sectional variation in the announcement day abnormal returns