Does the Mandatory Adoption of Outside Directors Improve Firm Performance?

38 Pages Posted: 26 Jul 2018

Date Written: July 26, 2018


This paper examines the economic consequences of the introduction of regulations that mandate listed firms adopt outside directors. The Japanese Companies Act was revised in June 2014, and this revision required listed firms to adopt at least one outside director. Although half of the listed firms had no outside directors before the revision of this act, almost all listed firms now have outside directors. I find that mandatory adopters experience a significant increase in profitability and corporate governance quality relative to voluntary adopters after the act was revised. This evidence suggests that the adoption of outside directors enhances firm performance in mandatory adopters. Moreover, this study reveals that the adoption of independent outside directors improves firm performance more than adopting affiliated outside directors.

Keywords: Corporate Governance, Outside Director, Regulation, Governance Reform, Companies Act Revision

JEL Classification: G34, G38, K22

Suggested Citation

Tsukioka, Yasutomo, Does the Mandatory Adoption of Outside Directors Improve Firm Performance? (July 26, 2018). 31st Australasian Finance and Banking Conference 2018, Available at SSRN: or

Yasutomo Tsukioka (Contact Author)

Kwansei Gakuin University ( email )

1-1-155, Uegahara
Nishinomiya, 669-1337

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