The Value of Academic Independent Directors

56 Pages Posted: 1 Jan 2020

See all articles by Bibo Liu

Bibo Liu

Tsinghua University - PBC School of Finance

Wei Wei

Tsinghua University - PBC School of Finance

Zhen Zhou

Tsinghua University - PBC School of Finance

Date Written: December 1, 2019

Abstract

This paper investigates the value of academic independent directors’ (ADs’) services by exploring an unexpected policy shock that forces ADs to resign from Chinese listed firms. Empirical results show that around the announcement of this policy, the stock prices of firms with ADs drop by 2.2%, which can be translated to a 135M RMB loss. These results suggest a likely causal relation between AD presence and firm value. ADs with academic backgrounds related to the firms’ primary line of business, with connections to an industry association, and holding top positions in a prestigious university are more valuable to firms. For ADs with business backgrounds, their services are more valuable when sitting on some specific board subcommittees. Moreover, ADs are more hardworking as they miss fewer meetings. Consistent with the market reactions, firm fundamentals and the efficiency of independent director monitoring and advising deteriorate significantly after ADs actually resign.

Keywords: Firm value, Academic independent director, Document 18, Fundamentals

JEL Classification: G34, G38

Suggested Citation

Liu, Bibo and Wei, Wei and Zhou, Zhen, The Value of Academic Independent Directors (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3504140 or http://dx.doi.org/10.2139/ssrn.3504140

Bibo Liu (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Wei Wei

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhen Zhou

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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