Semester Award Granted

Summer 2025

Submission Date

August 2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Thesis/Dissertation Advisor [Chair]

Luis García-Feijoo

Abstract

Essay 1 examines whether directors’ prior negative professional experiences— such as bankruptcies, stock price crashes, bond downgrades, and cash flow shocks— affect firm risk, financial policies, and performance. Using a panel of 48,288 board members across 5,324 U.S. industrial firms from 1984 to 2023, I construct a composite distress measure based on directors’ pre-board employment histories. Firms with a higher proportion of distress-experienced directors exhibit significantly lower return volatility, more conservative financial policies—including lower leverage, higher cash holdings, and reduced dividends—and greater policy persistence. These effects are strongest among independent directors and those chairing advisory committees. Causal evidence is supported by exogenous director turnover and a stacked difference-in-differences design. Despite lower valuation multiples, these firms deliver higher operating and stock return performance, highlighting the long-term value of experience-based governance.

Essay 2 explores whether the influence of directors’ prior distress experiences on firm risk and financial policies varies across national cultures and formal institutions. Using a panel of 10,310 non-financial firms across 31 countries from 2003 to 2023, I find that distress-experienced directors are associated with reduced volatility and more conservative financial policies. These effects are amplified in countries with high uncertainty avoidance, low individualism, and strong harmony values. I estimate two-way fixed effects models and instrument cultural variables and interactions using country-level religious composition and ethnic fractionalization. Additional robustness comes from exogenous director turnover and stacked difference-in-differences estimation. While formal institutions show weaker and mixed moderation, the results emphasize that cultural context critically shapes the behavioral impact of director experience on governance outcomes.

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