Board industry experience, firm value, and investment behavior

We analyze the valuation effect of board industry experience and channels through which industry experience of outside directors affects firm value. We find that firms with more experienced outside directors are valued at a premium compared to firms with less experienced outside directors. We provide a number of auxiliary analyses to mitigate endogeneity concerns including a quasi-experimental setting based on director deaths. Firms with experienced boards are able to limit investment distortions (lower investment-cash flow sensitivities) by building up valuable financial slack. Overall, board industry experience seems to be a valuable corporate governance mechanism.