The Value of Independent Directors: Evidence from Sudden Deaths
Bang Dang Nguyen
University of Cambridge Judge Business School
Kasper Meisner Nielsen
Hong Kong University of Science & Technology - Department of Finance
February 13, 2009
Journal of Financial Economics, Volume 98, Issue 3, December 2010, pages 550-567
EFA 2009 Bergen Meetings Paper
We investigate contributions of independent directors to shareholder value by examining stock price reactions to sudden deaths in the U.S. from 1994 to 2007. We find, first, that following director death, stock prices drop by 0.85% on average. Second, the degree of independence and board structure determine the marginal value of independent directors. Third, independence is more valuable in crucial board functions. Finally, controlling for director-invariant heterogeneity using a fixed-effects approach, we identify the value of independence over and above the value of individual skills and competences. Overall, our results suggest that independent directors provide a valuable service to shareholders.
Number of Pages in PDF File: 39
Keywords: Independent Director, Sudden Death, Firm Value, Corporate Governance, Board of Directors
JEL Classification: G3, G30working papers series
Date posted: February 16, 2009 ; Last revised: May 2, 2012
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