The Proportion and Social Capital of Outside Directors and Their Impacts on Firm Value: evidence from Korea

Abstract

This study examines the effects of outside directors' proportion and their social capital on firm value using a sample of 473 large, publicly traded Korean companies from 1998 through 2003. Outside director proportion, which is defined as the ratio of outside directors to the total number of directors of a company, is regarded as a proxy of board independence. Outside director social capital, which is defined as the degree to which outside board members have outside contacts in the external environment, is regarded as a proxy of board's ability to extract valuable resources or information from the environment. It is hypothesised that both the proportion of outside directors to the total directors and outside director social capital will be positively associated with firm value. This study reports strong GLS evidence of the relationship between outside director social capital and firm value but no significant relationship between outside director proportion and firm value.