Do Independent Directors Improve Firm Value? Evidence from the Great Recession

21 Pages Posted: 18 Oct 2017

See all articles by Nattawut Jenwittayaroje

Nattawut Jenwittayaroje

National Institute of Development Administration (NIDA)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Multiple version iconThere are 2 versions of this paper

Date Written: October 17, 2017

Abstract

The literature offers no clear evidence on the effect of independent directors on firm value. We argue that, during stressful times, firms may need more and better expert advice to navigate a crisis. Outside independent directors can provide such advice. So, the role of independent directors may be more pronounced during a stressful time. Consistent with this notion, we find that independent directors significantly improved firm value during the Great Recession of 2008. Specifically, a rise in the percentage of independent directors by one standard deviation would have improved firm value by 4.29% during the Great Recession. Outside the crisis period, however, our results do not show that independent directors increase firm value. Further analysis confirms the results, including random-effects regressions, propensity score matching, instrumental-variable regressions, as well as falsification tests. Our results are crucial as they demonstrate that the role of independent directors is different during stressful times than it is during normal times.

Keywords: Independent Directors, Board Independence, Firm Value, Financial Crisis, Corporate Governance, Great Recession

JEL Classification: G32, G34

Suggested Citation

Jenwittayaroje, Nattawut and Jiraporn, Pornsit, Do Independent Directors Improve Firm Value? Evidence from the Great Recession (October 17, 2017). Available at SSRN: https://ssrn.com/abstract=3054702 or http://dx.doi.org/10.2139/ssrn.3054702

Nattawut Jenwittayaroje

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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