Trainspotting: Board Appointments in Private Firms - Audinga Baltrunaite (Bank of Italy)

DeFiPP Seminar

Abstract:  (co-authored with Egle Karmaziene)

We examine how the size of the corporate directors' labor market affects the quality of board appointments in Italian private firms. To establish the causality of the relationship, we exploit exogenous variation in a firm's access to non-local potential directors induced by the gradual introduction of a high-speed train, which improved the connection between cities. Using administrative data on board members of the universe of limited liability companies and a two-way fixed effects model, we obtain time-invariant measures of the firm and director quality. We demonstrate that a positive shock to the non-local director supply results in a better-fitted director appointments: better firms improve the quality of their boards, while lower quality firms attract lower quality directors. The effect arises from a more active re-matching along the train line. Conditional on firm fixed effects, the director supply shock equivalent to the corporate directors' labor market in Milan, improves board quality percentile rank by 0.5 for the more productive firms and lowers that by 0.8 for the less productive firms. Our results further suggest that the higher quality board appointments are associated with higher firm profitability and productivity, and lower credit score.

Contact : Romain Houssa - romain.houssa@unamur.be
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