Determinants and consequences of board-level human and social capital

Boards of directors are integral to the modern corporation and therefore frequently studied. However, recent corporate scandals as well as mixed empirical findings about the impact of board structure highlight the fact that there is still much to learn. The purpose of this dissertation is to incorporate the concepts of board-level human and social capital into research on corporate governance by proposing and developing the construct of director capabilities. I argue that corporate governance research must go beyond its traditional focus on structural independence to truly understand board effectiveness. In addition, I question the assumption present in virtually all prior research on corporate governance that outside directors have the ability to monitor and participate in strategic decision making. To do so, I draw upon a range of theories including human and social capital, information processing, incentives, and learning. By expanding our understanding of board effectiveness to include the capabilities of the directors, this dissertation provides a framework that should help governance researchers find more consistent relationships between corporate governance and firm performance. In addition, this dissertation examines some determinants of director capabilities by examining how current governance trends and proposed independence reforms may negatively impact directors' willingness to serve on boards. I argue that recent actions that are supposed to improve boards may actually negatively impact boards by decreasing the overall quality of directors who choose to serve. I tested my hypotheses using archival data collected on 650 firms randomly sampled from the Fortune 1000 over the years 2000 through 2004. This resulted in a unique data set on the human and social capital of more than 5700 corporate directors.