Are independent directors enhancing value in the post mandate period?: Empirical evidence from India

Abstract

We extend the corporate governance literature by examining the effect of independent directors on firm value in the context of regulatory stipulation, considering all firms listed on the National Stock Exchange from 2004 to 2017. We examined the impact during the pre‐and post‐regulation period using the difference in difference analysis. The results indicate a positive effect of board independence on firm value. Our results show that the presence of independent directors is high in the post‐mandate period compared to the pre‐mandate period, indicating that firms are complying with regulations with more than 50% of independent directors on the board. Our results align with resource dependency theory, providing evidence that a higher number of outsider directors on a board acts as an additional resource for firms. When CEO duality is absent, the role of independent directors decreases and consequently the regulatory mandate based on CEO duality is effective. Thus, independent directors are significant providers of resources to a firm's governance in emerging economies, especially in the post‐mandate period.