VoxEU Column Labour Markets Productivity and Innovation

Trainspotting: Board appointments in private firms

There is little evidence of how the supply side of potential candidates affects board appointments in private firms. This column exploits the gradual introduction of high-speed and high-comfort train services in Italy to examine whether access to a larger pool of talent improves the match between a firm and its directors. Easier access to non-local directors increases positive assortative matching between directors and firms – high-quality firms improve their boards’ quality, while low-quality firms reduce the quality. Moreover, director quality is positively associated with firm growth and productivity, and negatively associated with the probability of default.

Members of corporate boards are key to a firm’s decision-making and success (Adams and Ferreira 2007, De Haas et al. 2017). Naturally, board appointments are determined by a firm’s demand for directors but they may also be influenced by supply-side factors (e.g. Cai et al. 2017, Ferreira et al. 2020). As argued by Knyazeva et al. (2013: 1562), “the ability of most firms to recruit qualified independent directors is significantly affected by the local supply of prospective directors”. Our recent research strengthens that view as we highlights the causal link between size of the corporate directors’ labour market and the quality of the matching between private firms and their directors (Baltrunaite and Karmaziene 2020). In contrast to past literature on director appointments, which has mostly focused on public companies (Ewens and Malenko 2020), we study appointments in private firms. 

We study how the size of the pool of potential candidates affects the director-firm match quality in private firms. More specifically, to overcome the endogenous board selection – for example, worse firms may fail to recognise the importance of competent directors – we exploit a gradual introduction of the high-speed and high-comfort train service in Italy, which connected 14 cities between  2005-2017. Our strategy’s underlying logic is that the reduction in personal travel costs (e.g. time or discomfort) expands the supply of potential directors willing to accept a distant board appointment. Travel distance may be important as firms may prefer in-person to online board meetings. Online gatherings forced by the COVID-19 pandemic are perceived as less effective since only “in a room full of people you can take the pulse of the crowd" and “allow for a proper grilling of bosses" (Economist 2020).1 Second, board meetings may be relatively frequent, increasing directors’ preference for day trips. Third, these meetings may be intense and lengthy, typically lasting for at least three to four hours (Hadzima 2005), leading the directors to consider comfort costs. 


We use a rich and novel dataset on Italian limited liability companies, which combines administrative data on board members’ identities and demographics with firm-level information on firm age, location, industry, and balance sheet indicators. It comprises over 295,000 firm-year observations, information on over 31,000 firms, and over 162,000 individuals who have held positions on their boards.

We show that a larger pool of potential non-local directors improves firm–director match quality. For example, approximately 157,000 directors serve on boards in Milan compared to 31,000 in Bologna. These numbers are arguably a good proxy for the overall number of individuals considered by companies for their board appointments. We show that after two cities (e.g. Milan and Bologna) become connected via a high-speed train line,  the boards of high-quality firms located close to the high-speed train station in a city like Bologna improve by 1.3 percentage points. In contrast, non-local director supply diminishes the board quality in low-quality firms – they lose directors and experience difficulties substituting them. Overall, the size of the potential directors’ pool improves the director-firm fit by increasing the extent of positive assortative matching, whereby higher (lower) talent directors sit on boards of higher (lower) quality firms. This finding is consistent with Dauth et al. (2019) who find better assortative matching of high-quality plant workers in large German cities.

Consistent with the improved mobility across locations, we find that firms with access to a non-local director pool hire more directors that were born or worked in the train-destinations at the expense of directors based in other locations. We also study whether a firm’s access to non-local potential directors changes observable directors’ characteristics, such as their demographic composition or family ties. Both young people and women are disproportionally few among directors in Italian firms (Baltrunaite et al. 2019). We show that access to a larger pool of candidates increases age diversity but not gender diversity on corporate boards. Our results are consistent with heterogeneous mobility preferences across demographic groups, with women (young individuals) having a lower (higher) propensity to move for long-distance work appointments (Farre et al. 2020). An increased supply of non-local directors further lowers the share of family members on boards, confirming that the presence of relatives in the board room is indicative of a firms’ limited propensity to draw from a broader pool of talent (Burkart et al. 2007, Perez-Gonzalez 2006, Bennedsen et al. 2007).

To shed light on the effects of board quality on firm outcomes, we show that a shock in potential directors’ supply benefits high-quality firms, by raising revenues and total factor productivity, and lowering the probability of default. Consistent with the idea that the scarce supply of suitable directors hinders firm growth and performance, higher-quality directors render firm input utilisation more effective. Overall, the increase in high-quality firms’ performance comes at the cost of low-quality firms, potentially raising the dispersion in firm performance. 


Our work offers important policy implications for high-speed train infrastructure investments, which connect otherwise fragmented local labour markets for high-skill workers, such as corporate directors. Following our findings, policymakers may aim to improve worker mobility as such connections benefit resource allocation in the economy. We also show that the age diversity on firms’ boards increases, and the level of family-based appointments decreases in larger labour markets. Yet, due to women’s lower propensity to move, improving workers’ mobility is unlikely to solve the lack of gender diversity on boards (Farre et al. 2020). Increasing flexibility in board attendance or investing in human capital to raise the quality of the local talent pool may be better solutions to balance gender composition on boards of directors.

Authors' note: The views expressed here are those of the authors and do not necessarily reflect those of the institutions they belong to.


Adams, R B and D Ferreira (2007), “A theory of friendly boards”, Journal of Finance 62(1): 217-250.

Baltrunaite, A, E Brodi, and S Mocetti (2019), “Assetti proprietari e di governance delle imprese italiane: nuove evidenze e effetti sulla performance delle imprese”, Bank of Italy Occasional Papers No.514.

Baltrunaite, A and E Karmaziene (2020) “Trainspotting: board appointments in private firms”, Bank of Italy Temi di Discussione (Working Paper) No. 1278.

Bennedsen, M, K M Nielsen, F Pérez-González, and D Wolfenzon (2007), “Inside the family firm: The role of families in succession decisions and performance”, The Quarterly Journal of Economics 122(2) :647-691.

Burkart, M, F Panunzi, and A Shleifer (2007), “Family firms”, Journal of Finance 58: 2167-2202.

Cai, J, T Nguyen, and R A Walkling (2017) “Director appointments - It is who you know”, Working paper 28th Annual Conference on Financial Economics and Accounting.

Dauth, W, S Findeisen, E Moretti, and J Suedekum (2018), “Matching in Cities”, CEPR Discussion Paper No. 13347. 

De Haas, R, D Ferreira, and T Kirchmaier (2017), “The Inner Workings of the Board: Evidence from Emerging Markets”, CEPR Discussion Paper No. 12317 

Economist (2020), “Low resolution: Online annual meetings may favour managers over shareholders”, 30 April.

Ewens, M, and N Malenko (2020), “Board dynamics over the startup life cycle”,, 8 August.

Farre, L, J Jofre-Monseny, and J Torrecillas (2020), “Commuting Time and the Gender Gap in Labor Market Participation”, IZA Discussion Paper No. 13213

Ferreira, D, E Ginglinger, M A Laguna, and Y Skalli (2020) “Board quotas and director-firm matching”, ECGI - Finance Working Paper No. 520/2017.

Hadzima, J (2005), “Don’t Bore the Board of Directors (How To Use A Board Effectively)”. 

Knyazeva, A, D Knyazeva, and R Masulis (2013), “The supply of corporate directors and board independence”, Review of Financial Studies 26: 1561-1605.

Perez-Gonzalez, F (2006), “Inherited control and firm performance”, American Economic Review 96: 1559-1588.


1 Nonetheless, as time passes people may adapt to the online mode of work interactions, possibly lowering the importance of personal commuting costs. 

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