Do Investors Follow Directors?

55 Pages Posted: 30 Mar 2017 Last revised: 13 Jan 2020

See all articles by Jay Dahya

Jay Dahya

Zicklin School of Business

Richard Herron

Northeastern University

Date Written: November 21, 2017


Using more than 30 million quarterly observations on investment funds, firms, and directors, we show that equity-ownership relationships between funds and directors comove when new firms appoint these directors. Funds follow directors from high operating performance and high valuation firms to low valuation firms, and these funds make larger new equity investments when they follow these directors. Relative to their other new equity investments, these funds earn abnormal returns the quarter after they follow directors. However, there is little evidence of long-term improvements at these firms. The strategy of following directors is profitable only in the short run.

Keywords: boards of directors, institutional investors, corporate governance

JEL Classification: G30, G34, G23

Suggested Citation

Dahya, Jay and Herron, Richard, Do Investors Follow Directors? (November 21, 2017). Available at SSRN: or

Jay Dahya

Zicklin School of Business ( email )

17 Lexington Avenue
New York, NY 10010
United States

Richard Herron (Contact Author)

Northeastern University ( email )

Boston, MA 02115
United States

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