Does board turnover enhance firm performance? A contingent approach

Despite calls for board turnover to refresh the board’s objectivity and knowledge, board turnover may not be as beneficial as its proponents suggest. Using an information-processing perspective that deviates from agency and resource dependence perspectives, our findings on a sample of U.S. firms from 2000 to 2013 demonstrate that board turnover – in terms of magnitude of outgoing and incoming directors – affects subsequent firm performance. Our findings suggest that board membership changes disrupt shared information developed in the board to facilitate decision-making. We also show that conditions of the firm and board prior to board turnover mitigate or exacerbate the impact of incoming directors on firm performance, which imply that the capacity of the board to manage turnover plays an important role in determining its effect.