Director prestige, firm performance, value, and risk.

This thesis investigates the impact of director prestige on firm performance, value, and risk. The first essay, entitled, “Are prestigious directors mere attractive ornaments on the corporate Christmas tree?”, examines the impact of appointments of prestigious directors on both short- and long-term firm performance. Using the UK’s unique institutional setting of Queen’s honours to measure director prestige, I find that the market reacts positively to the appointment announcements of Prestigious Award-Winning Directors (PAWDs). Further, I show that firms appointing PAWDs show a significant improvement in performance than firms appointing Non-Award-Winning Directors (NAWDs). However, it is the first appointment of a PAWD to firms that are driving the significance implying that there is no incremental value in appointing more than one PAWD to the board. I attribute these findings to the monitoring, legitimacy, and preferential access to resources roles of prestigious directors. My results are robust to several checks controlling for endogeneity arising through omitted variable bias and self-selection bias. In the second essay, entitled, “Prestigious Directors, Firm Acquisitions, Financial Policies and Risk”, I investigate the impact of prestigious directors on the firm’s acquisition behaviour, financial policies such as cash holdings and net leverage and its risk and valuation. I find that firms undertake less acquisitions, especially, diversifying acquisitions, after appointing PAWDs. Moreover, they increase their cash holdings after appointing PAWDs, and hence, their net leverage decreases as firms need not borrow externally due to excess cash. Finally, I find that the firm risk declines and the value increases after the appointment of prestigious directors. I consider these findings to diligent monitoring performed by prestigious directors that reduce managerial private benefits. Overall, my findings are consistent with both the Agency Theory and the Resource Dependence Theory that suggest that prestige not only acts as an incentive to effectively monitor management but also signals higher human and social capital.