The Non-Correlation Between Board Independence and Long-Term Firm Performance
University of Colorado at Boulder - Department of Finance
Bernard S. Black
Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
As published in Journal of Corporation Law, Vol. 27, Pp. 231-273, 2002
The boards of directors of American public companies are dominated by independent directors. Many commentators and institutional investors believe that a "monitoring board," composed almost entirely of independent directors, is an important component of good corporate governance. The empirical evidence reported in this Article challenges that conventional wisdom.
We conduct the first large-sample, long-horizon study of whether the degree of board independence (proxied by the fraction of independent directors minus the fraction of inside directors on a company's board) correlates with various measures of the long-term performance of large American firms. We find evidence that low-profitability firms increase the independence of their boards of directors. But there is no evidence that this strategy works. Firms with more independent boards do not perform better than other firms. Our results support efforts by firms to experiment with board structures that depart from the conventional monitoring board.
Note: This paper is identical to the article as published in the Journal of Corporation Law. The published article is available, without the Stanford Law and Economics cover page, at
Note: This paper previously appeared in SSRN journals under the title "Do Independent Directors Matter?"
Number of Pages in PDF File: 44
JEL Classification: G34Accepted Paper Series
Date posted: October 3, 1998
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