CEO outside Board Service and Managerial Short-Termism

SYNOPSIS We hypothesize that CEOs with outside board service are less likely to engage in short-term-oriented activities because external directorships can enhance their capabilities, relieve job-related concerns, and have a signaling impact in the CEO labor market. Consistent with our prediction, we find that CEOs’ outside directorships have a negative relation with short-term-oriented behaviors. The negative association is restricted to two outside directorships, particularly for a subgroup of firms with strong short-term incentives, such as firms with a small decrease in earnings. The negative nonlinear relation is also found to be more pronounced for firms operating in more homogenous industries and firms with weaker corporate governance. Additionally, we document that CEO outside board service has a positive relation with long-term-oriented behaviors and long-term firm performance. This study suggests that outside board service up to two positions can reduce managers’ short-termism and promote long-termism, improving the long-term performance of their employer firms. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D22; G34; M41.