Working Paper Series in Finance 00-08 THE SHAREHOLDER WEALTH EFFECTS OF DIRECTOR DEPARTURE ANNOUNCEMENTS

While executive directors are responsible for superior performance, their behaviour may not always be aligned with shareholder interests. Non-executive directors provide one method of monitoring and controlling these and other agency costs. An event study focusing on director departure provides some insight into the economic importance of directors to shareholders. Initial results highlight both the importance of non-executive directors relative to other directors and the possibility of performance and size impacts. Multivariate tests suggest that non-executive director departures, especially when combined with resignation, explain the cross-sectional variation in share returns associated with director departure even after controlling for performance and size. Acknowledgements We express our appreciation to the participants at the 2000 AAANZ conference, particularly the discussant, Professor Tim Brailsford.