Does Personal Liability Deter Individuals from Serving as Independent Directors? Evidence from a Corporate Governance Reform in India

S. Lakshmi Naaraayanan, Kasper Meisner Nielsen

Research output: Contribution to conferencePaperResearchpeer-review


This study examines whether personal liability for corporate malpractice deters individuals from serving as independent directors. We exploit a quasi-natural experiment in the form of a recent corporate governance reform in India, which introduced personal liability for independent directors. We find that personal liability deters individuals from serving on corporate boards and find stronger deterrence among firms that have a) greater litigation and regulatory risk, b) higher monitoring costs, and c) weak monetary incentive to serve as an independent director. We document changes in board composition, resulting in fewer expert directors after the reform. The decline in board expertise results in 1.6% lower firm value for the average firm. Overall, our study documents that personal liability deters individuals with high reputational costs and weak monetary incentives from serving on corporate boards.
Original languageEnglish
Publication date2019
Number of pages57
Publication statusPublished - 2019
Event2019 Financial Management Association Annual Meeting - Sheraton New Orleans Hotel, New Orleans, United States
Duration: 23 Oct 201926 Oct 2019


Conference2019 Financial Management Association Annual Meeting
LocationSheraton New Orleans Hotel
Country/TerritoryUnited States
CityNew Orleans
Internet address


  • Independent directors
  • Reputation
  • Accountability
  • Personal liability
  • Director incentives

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