Board Refreshment: Like a Breath of Fresh Air

Using a sample of firms listed on the S&P1500 index for the period 2006 – 2021, we develop a comprehensive board refreshment index to examine why firms refresh as well as to consider the effects of such changes on the monitoring efforts of the board. We measure refreshment as a within board measure of the changes in diversity based on gender, nationality, age, interlocks, classification, education level, and financial expertise. We find that longer tenured boards with older directors are more likely to refresh. Better governed firms and more diverse boards are also more likely to seek refreshment. We find a positive relation between board refreshment and CEO turnover-performance sensitivity, pay-for-performance sensitivity, and pay-for-risk sensitivity. Thus, our findings suggest that board refreshment promotes more effective board monitoring as well as efficient managerial contracting. Analyzing board refreshment addresses an important shortcoming in the board diversity literature by directly studying the dynamics of boards.