Going When the Going Gets Tough: Does the Labor Market Penalize Pre-Emptive Director Resignations?

When firms experience negative events such as lawsuits or earnings misstatements, directors also suffer. So why do most directors stay rather than resigning prior to negative events? I show that directors who leave prior to negative events experience greater declines in the number of their directorships than directors who stay. These declines do not appear to be voluntary or driven by forced departures. Instead, they appear to be the results of labor market penalties. The results suggest that most directors stay because it may be more costly for them to leave.