Benjamin Segal studies independent directors
Benjamin Segal’s coauthored paper, “Do Independent Directors Tell the Truth, the Whole Truth, and Nothing but the Truth When They Resign?” was published in 2018 in The Journal of Accounting, Auditing & Finance. The authors examine the informativeness and credibility of independent directors’ stated resignation reasons. Their findings show that the likelihood of resignation increases with the director’s reputation and weak future firm performance. In addition, the evidence is consistent with directors obfuscating the reason for departure by providing benign and unverifiable resignation reasons. Investors seem aware of the disclosure incentives of departing directors and react negatively to such resignations. However, investors, by and large, underreact to the resignation announcement, likely because of the benign reason given for the resignation. Their results suggest that notwithstanding the perception of outside directors’ impartiality and assumed interest alignment with shareholders, independent directors’ personal reputation concerns may conflict with the interests of shareholders to whom they owe fiduciary duties.