Director Exit: The Prestige-Power Gap in Newly Public Ventures

We examine intra-board social hierarchies as the drivers of director exits from venture boards in the early years after the initial public offering (IPO). Building on the observation that directors care about their relative standing on the board of directors, we advance the notion of a “prestige-power gap,” i.e. the difference between one’s relative prestige and relative power on the board among other outside directors. We find that the prestige-power gap is a significant predictor of director exit, and is moderated by the characteristics of the board (frequency of board meetings, and other directors’ prestige), the focal director (gender), and the CEO (prestige). Additional analysis suggests that such director exits significantly increase the likelihood and the speed of firm’s delisting from the stock exchange due to poor performance. Our study contributes a better understanding of the antecedents of director exit, the negative unintended consequences of mandated formal structures (board committees) at IPO, and the social hierarchies in boards of directors and other workgroups.