Lets (Not?) Hang Out! Examining the Exit of Prestigious Directors from Newly Public Firms

This study examines prestigious directors’ decision to continue on or exit from newly public firms’ boards with few, if any, other prestigious directors. Drawing on the literatures on status homophily and social identity theory, I theorize that a decrease in the level of status homophily, reflected in the level of pre-exiting board prestige, will differentially affect directors’ exit decisions such that high-status or prestigious directors are more likely to exit the boards than lower status or non-prestigious directors. Further, I propose that prestigious directors’ ability to influence firm outcomes and desire to maintain social ties with incumbent directors are likely to temper the importance of serving with directors of similar status, and in turn motivate them to continue serving on boards despite a decrease in status homophily. I test these arguments using data from five-year, pooled cross sectional sample of 424 firms that went public between 2001 and 2005.