Does Board "Independence" Destroy Corporate Value?

51 Pages Posted: 20 Aug 2013 Last revised: 13 Oct 2014

See all articles by Peter L. Swan

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

David Forsberg

UNSW Business School

Date Written: August 15, 2014


The Australian Securities Exchange (ASX) Corporate Governance Council (CGC) has required all listed firms to either adopt a majority of "independent" board members without links either to management or to substantial shareholders or explain "if not, why not". While this close to a global standard, it is the opposite to US exchanges who also require "independence from management" but are explicit in stating that significant shareholding need be no barrier to independence. Within a framework of both fixed firm and combined industry-year effects such that each firm is compared with itself, we show that firm performance declines significantly as affected outside directors depart the firm to make way for "Independents". Regular Gray directors make better acquisition decisions, increase the proportion of incentives in CEO pay, and raise dividend payouts. The presence of more executives on the board significantly reduces the CEO’s pay, while combining the role of CEO and chair adds to firm value.

Keywords: Independent directors, Board monitoring, Board characteristics, Board performance

JEL Classification: G34, J41, J44, L25

Suggested Citation

Swan, Peter Lawrence and Forsberg, David, Does Board "Independence" Destroy Corporate Value? (August 15, 2014). 26th Australasian Finance and Banking Conference 2013, 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: or

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

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Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


David Forsberg

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052

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