Antecedents of Corporate Board Independence in Simultaneous Equation Framework: Evidence from India

Abstract

This paper drew attention to the core aspect of corporate governance, that is, installation of greater independence in corporate boards. However, it is to be noted that the empirical association between board independence and firm value has not yet been established decisively. Coupled with this fact, board independence, in turn, is determined by several factors, for example, firm value, inside ownership, leverage, firm's dividend payout policy, and so forth. Viewing the lack of such evidence in the Indian context, it became very crucial to analyze the aforementioned factors by using a sample of top Indian corporates. The data was empirically tested by means of three-stage least square regression, which unequivocally accounted for the endogeneity between board independence and firm value. The findings of 3SLS analysis suggested that inside ownership, leverage, dividend payouts, and combined board leadership structure appeared to be significant determinants of board independence. These results will be suitable for policy makers, regulators, and academicians.