Do Investors Follow Directors to Other Companies?

In our recent study, we find that institutional investors follow high-performing directors to new firms and make larger initial investments in those firms than in other firms. Fama (1980) and Fama and Jensen (1983) support our finding and propose that such directors are especially skilled at advising and monitoring their firms to ensure that shareholder interests are protected.

The notion that institutional investors might follow some directors also receives support from recent work that shows that some directors create more shareholder value than others (e.g., Masulis and Mobbs 2011; Masulis and Mobbs 2014). Anecdotal evidence suggests that large institutional investors … Read more