Changing the guard: The impact of director change on firm performance amid lawsuit duration and financial distress
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2023-06-26
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en
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This study examines the impact of changing the director on firm performance in the context of securities class-action lawsuits. This study draws upon the resource dependence theory (RDT) to explore how firms utilize a new director as the resource to manage the crisis of a lawsuit and enhance firm performance. This study addresses the puzzle regarding the role of the director after a crisis occurs. Using a sample of 334 public firms involved in securities class-action lawsuits between 2002 and 2012 in the U.S. to test the theoretical predictions. The study finds that a director change negatively influences firm performance in the context of securities class-action lawsuits. Moreover, financial distress has no further positive or negative consequence for the firm as a moderator. A longer lawsuit duration, however, has a negative effect on director change and firm performance. Overall, this study contributes to the literature on the board of directors in crisis management and the resource dependence theory by highlighting the detrimental effects of a director change for the firm during a securities class-action lawsuit.
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Faculteit der Managementwetenschappen