The Value of Independent Directors: Evidence from Sudden Deaths
39 Pages Posted: 16 Feb 2009 Last revised: 30 Mar 2015
Date Written: February 13, 2009
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: Suggested Citation