From Classroom to Boardroom: The Value of Academic Independent Directors

Abstract

Academic independent directors account for a significant fraction of boards of directors and play important roles. Using Chinese data, we find that stock prices drop by 1.39% following unexpected resignations of academic independent directors due to the ambiguity of a regulation, and by 1.74% following another regulation that explicitly prohibits professors with administrative positions from serving as independent directors. Cross-sectional tests show that the market reacts more negatively when the affected academic director holds more subcommittee chair positions or directorships, assumes a position on the board before the current CEO is in charge, comes from a top-tier university, has high-quality foreign academic experience, or works for firms that are in greater need of monitoring and advisory services. The results from the two samples are broadly consistent. We also offer some explanations for the prevalence of academic independent directors in China. Overall, our results indicate that academic independent directors in China create value for shareholders through both monitoring and advising.

Keywords: Academic Independent Director, Board of Directors, Government Regulation, Document No. 18

JEL Classification: G30, G38