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

16 Pages Posted: 6 Mar 2019

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: March 2019

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.

Suggested Citation

Jenwittayaroje, Nattawut and Jiraporn, Pornsit, Do Independent Directors Improve Firm Value? Evidence from the Great Recession (March 2019). International Review of Finance, Vol. 19, Issue 1, pp. 207-222, 2019. Available at SSRN: https://ssrn.com/abstract=3345657 or http://dx.doi.org/10.1111/irfi.12163

Nattawut Jenwittayaroje (Contact Author)

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Pornsit Jiraporn

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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