In our paper, Effects of Local Director Markets on Corporate Boards, which was recently made publicly available on SSRN, we examine how local director labor markets affect board composition and the quality of corporate governance. We document that the supply of potential directors in the local labor market strongly affects board composition of S&P 1500 companies, namely, the proportion and expertise of independent directors. For instance, in an average sample firm, a third of independent directors in S&P 1500 firms holding executive positions are employed locally.

Our empirical tests show that access to a larger local pool of prospective directors has a positive effect on the proportion of independent directors and a negative effect on the proportion of gray and inside directors found on a typical board of directors. At firms located near larger local pools of prospective directors, a significantly higher fraction of independent directors are employed locally. Overall, boards of firms located near larger pools of managerial talent include a larger percentage of independent directors who are executives from other nearby firms.

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