Saving Face: How Exit in Response to Negative Press and Star Analyst Downgrades Reflects Reputation Maintenance by Directors

This paper explores the extrinsic and intrinsic motivations driving individual-level responses to reputational threats in the context of the director labor market. Integrating work on reputation with self-determination and identity theories, we theorize that negative attention from the media and star equity analysts threatens directors’ reputations, motivating proactive behavior to mitigate both the external and internal consequences of reputation damage. Using a sample of directors of S&P 1500 firms between 2003 and 2014, we argue and find that negative media coverage and downgrades by star equity analysts are positively related to director exit, even after controlling for firm performance, overall media visibility, and negative events such as lawsuits and financial restatements. We also find that director status intensifies the effect of negative media coverage on exit, serving as the board chair attenuates the effect of star analyst downgrades on exit, and director tenure intensifies the effects of both negative media coverage and star downgrades on exit. In post-hoc testing, we provide further evidence of director reputation maintenance by demonstrating the counterintuitive finding that negative attention from the media and star analysts also increases directors’ likelihood of joining the boards of other S&P 1500 firms.