۱- Introduction

۲- Prior research and contribution

۳- Implications for corporate governance

۴- Why do mispresenting directors increase firm value?

۵- How strong are the incentives for directors to hide their employment history?

۶- Who makes the decision to disclose, firm or director? Does it matter?

۷- Do non-disclosing directors and firms pay any price for the misrepresentations?

۸- Conclusion

References

Abstract

Gow et al. (2018) (henceforth GWY) examine how directors’ reputation concerns influence the proxy statement disclosure of their business experience. They find that reputation concerns combine with lax disclosure requirements to cause directors’ employment at troubled firms to be omitted from proxy filings. Further, the evidence suggests that these misrepresentations succeed in misleading both the labor and capital markets. In this discussion, I review the literature to highlight the importance of GWY’s contribution. I also discuss the study’s implications, identify some of its limitations as well as highlight several unanswered questions that provide opportunities for future research.

Introduction

Corporations are required to disclose their directors’ business experience in proxy filings. This allows investors to evaluate the management of a public company and make informed investment and voting decisions. However, prior to SEC rule changes in 2010, firms were allowed considerable discretion in reporting directors’ employment history. Gow, Wahid and Yu (2018) (GWY) exploit this setting to investigate two main research questions: First, do reputational concerns cause corporate directors to hide their employment at troubled firms? Second, if so, does this strategic disclosure benefit directors and the firms that employ them? A major innovation of GWY is their ability to compare the employment history that directors choose to disclose to their actual employment history. Drawing from prior research that shows directors face labor market penalties when their employment signals they failed in their monitoring and advising duties (see, e.g. Srinivasan 2005), GWY’s first hypothesis is a natural one: Reputation concerns, coupled with lax disclosure requirements, cause directors to mask their leadership at troubled firms. Consistent with their hypothesis, the evidence suggests that directors are less likely to disclose their employment at firms that experience reputation decreasing events such as a bankruptcy, securities litigation or accounting restatement. This provides a new and unique view into the specific actions directors take to influence their reputation.