Do academic independent directors matter? Evidence from stock price crash risk

Abstract

This study examines the effect of academic independent directors (AIDs) on firm-specific stock price crash risk. AIDs reduce future crash risk by improving the quality of financial reporting, promoting corporate social responsibility, lowering agency costs, and curbing overinvestment. The benefit of AIDs is more pronounced for firms with a higher proportion of intangible assets, non-state-owned enterprises (non-SOEs), and a greater separation of control and ownership. AIDs and external governance appear to play a substituting role in reducing crash risk. Further analyses show that the effect of AIDs on crash risk is effective only within a midrange percentage of AIDs (neither small nor large), and AIDs with a background in finance have a greater effect on reducing crash risk. Our findings shed new light on the value of AIDs for firm risk and corporate governance.