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The Value of Independent Directors: Evidence from Sudden Deaths

39 Pages Posted: 16 Feb 2009 Last revised: 30 Mar 2015

Bang Dang Nguyen

University of Cambridge Judge Business School

Kasper Meisner Nielsen

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: February 13, 2009

Abstract

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.

Keywords: Independent Director, Sudden Death, Firm Value, Corporate Governance, Board of Directors

JEL Classification: G3, G30

Suggested Citation

Nguyen, Bang Dang and Nielsen, Kasper Meisner, The Value of Independent Directors: Evidence from Sudden Deaths (February 13, 2009). Journal of Financial Economics, Volume 98, Issue 3, December 2010, pages 550-567. Available at SSRN: https://ssrn.com/abstract=1342354 or http://dx.doi.org/10.2139/ssrn.1342354

Bang Dang Nguyen

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

Kasper Meisner Nielsen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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