Effect Of Independent Directors Research Articles

Board of directors, COVID-19, and corporate social responsibility monetary performance: direct and interaction effects analysis

Purpose This study aims to provide archival evidence on the impact of board characteristics on corporate social responsibility (CSR) monetary performance and how they interact with the COVID-19 pandemic in the context of CSR monetary performance. Design/methodology/approach This study analyzes listed companies in Oman’s capital market from 2016 to 2021, using pooled ordinary least squares and unique CSR performance measures such as budgeting and spending. Findings The study finds that companies with more expertise and frequent meetings are more likely to allocate a larger budget for CSR activities. However, this does not apply to larger boards or to independent directors. During the COVID-19 pandemic, the effect of independent directors on CSR budgeting and spending is more pronounced, and boards with more expertise and meetings show a negative interaction with the pandemic. The interaction of board characteristics with COVID-19 in terms of CSR monetary performance varies depending on company size. Board independence and expertise show a significant reaction to COVID-19 infection and death cases when setting CSR budgeting and spending. Research limitations/implications The findings of this study are stimulating, but stem from an emerging country with unique cultural and institutional characteristics. Methodological issues were also encountered during the analysis, so readers should exercise caution when applying the results to other settings. Practical implications This study highlights board involvement in deciding a company’s CSR investment, as it was believed that chief executive officers are considered responsible for CSR activities. Additionally, this research underscores the significance of incorporating the financial aspects of CSR into reporting. Originality/value This study examines the seldom explored relationship between corporate boards and CSR monetary aspects during regular and irregular times, offering theoretical and practical insights that benefit multiple stakeholders.

When politics meets sustainability: the effect of independent directors' political connections on corporate sustainability disclosure in China

PurposeThis paper investigates the influence of political connections on sustainability disclosure in the context of China's Regulation 18.Design/methodology/approachThe study employs a quasi-experimental approach, utilizing difference-in-difference (DiD) analysis, dynamic DiD and propensity score matching to analyze the effects of politically connected independent directors on sustainability disclosure following the implementation of Regulation 18.FindingsCompanies with politically connected independent directors show an improvement in sustainability disclosures after Regulation 18. This effect is stronger for firms facing high political pressure or lacking alternative political power. Additionally, the increase in value from sustainability disclosures compensates for the loss of politically connected independent directors, indicating a positive value impact of sustainability disclosures.Originality/valueThis study provides novel insights into the corporate disclosure policy in China by investigating the impact of politically connected directors on sustainability disclosure. Additionally, it sheds light on the limitations of political power and its substitution effects within companies.

Independent directors’ information acquisition and corporate innovation: Evidence from corporate site visits

This study investigates how independent directors’ information acquisition affects corporate innovation. Exploiting a unique dataset from the Chinese market, we document that firms patent more and have more high-quality technical patents after independent directors conduct corporate site visits. The positive relation is more pronounced for firms with stronger external governance, higher information acquisition cost, greater advisory needs, and more independent directors having innovation backgrounds. The results are robust when we address the endogeneity concerns, use alternative measures of patent output, and examine citations. Our findings suggest that independent directors’ advisory function is more effective when they have better access to firm-specific information, and provide new evidence on the relation between information asymmetry and the effectiveness of independent directors in corporate governance.

Role of Board Functions in Bank Performance: Direct and Indirect Effects of Board Independence

The present study attempts to explore the Indian banking sector from 2007 to 2017 for its performance and for the influence of important characteristics like ownership of banks, board functioning and the effect of independent directors. The results establish that the type of bank has a significant impact on performance metrics, board characteristics and bank-specific features. Moreover, the positive significant influence of board size and board independence is confirmed using panel data analysis. Further, the partially mediating role of independent directors on the relationship of financial performance (measured through return on assets and return on equity) and board characteristics is confirmed using mediation analysis. The present research holds important insights for policymakers, regulators and stakeholders of the banking sector, with a push to reorient their emphasis on board independence and board functioning for better financials of banks in India.

The effect of independent directors' financial expertise on the use of private information in setting bank CEO bonuses

PurposeThe purpose of this study is to examine whether independent directors' financial expertise affects the use of private information in setting bank chief executive officer (CEO) bonuses.Design/methodology/approachThe association between future firm performance and bank CEO bonuses is used to measure the incorporation of private information into bonuses. Both level and change specifications are employed to test the effect of independent directors' financial expertise on the use of private information in setting CEO bonuses.FindingsIt is found that future firm performance is more positively associated with bank CEO bonuses for banks with a higher proportion of financial experts among independent directors than for other banks. The findings suggest that independent directors with financial expertise can more effectively use private information in setting bank CEO bonuses.Originality/valueResearch on independent directors' role in the use of private information in setting compensation is valuable for understanding how corporate governance can enhance the efficiency of CEO compensation contracts. This study indicates that financial experts on the bank board play an important role in this regard.

Executives' pay–performance link in China: evidence from independent and gender-diverse compensation committees

PurposeIn this paper, the authors investigate whether an independent and gender-diverse compensation committee strengthens the relationship between top managers' pay and firm performance in Chinese companies. The authors also investigate whether the independent compensation committee composed of all male directors is effective in designing the optimal contract for executives.Design/methodology/approachThe authors use data from A-share listed companies on the Shenzhen and Shanghai stock exchanges from 2005 to 2015. As a baseline methodology, the authors use pooled ordinary least square (OLS) regression to draw inferences. In addition, cluster OLS regression, two-stage least square regression, the two-stage Heckman test and the propensity score matching method are also used to control for endogeneity issues.FindingsThe authors find evidence that an independent or gender-diverse compensation committee strengthens the link between top managers' pay and firm performance; that the presence of a woman on the compensation committee enhances the positive influence of committee independence on this relationship; that a compensation committee's independence or gender diversity is more effective in designing top managers' compensation in legal-person-controlled firms than they are in state-controlled firms; that gender diversity on the compensation committee is negatively associated with top managers' total pay; and that an independent compensation committee pays top managers more.Practical implicationsThe study results highlight the role of an independent compensation committee in designing optimal contracts for top managers. The authors provide empirical evidence that a woman on the compensation committee strengthens its objectivity in determining top managers' compensation. The study finding supports regulatory bodies' recommendations regarding independent and women directors.Social implicationsThe study findings contribute to the recent debate about gender equality around the globe. Given the discrimination against women, many regulatory bodies mandate a quota for women on corporate boards. The study findings support the regulatory bodies' recommendations by highlighting the economic benefit of having women in top management positions.Originality/valueThis study contributes to literature by investigating the largely overlooked questions of whether having a gender-diverse or independent compensation committee strengthens the relationship between top managers' pay and firm performance; whether an independent compensation committee is more efficient in setting executives' pay when it is gender-diverse; and whether the effect of independent directors and female directors on top managers' compensation varies based on the firm's ownership structure. Overall, the main contribution of the study is that the authors provide robust empirical evidence in support of the managerial power axiom.

Directors’ Remuneration and Performance: Evidence from the Textile Sector of Bangladesh

This study investigates the impact of board incentives as proxied by directors' remuneration on the financial performance of listed textile companies in Bangladesh. Using Generalized Method of Moments (GMM) and data pertaining to listed textile companies of Dhaka Stock Exchange (DSE) during the period from 2011 to 2017 (resulting in a total of 140 firm-year observations), we have estimated the firm performance equation involving directors' remuneration and board independence as the independent variables and some other control variables like firm age, size, leverage, and operating efficiency. The results reveal that there is a negative association between board remuneration and firm performance. In addition, this study finds no significant relationship between board independence and firm performance of the sample firms. Our findings suggest that higher pay to the board does not stimulate higher firm performance and, in turn, results in shareholders getting nothing in return from this and, hence, is a matter of great concern for them. Moreover, our results indirectly indicate that currently directors' remuneration in Bangladesh is not aligned with the firm performance, which has been emphasized in extant corporate governance literature. Besides, this paper further raises questions about the effectiveness of independent directors in the boards of textile firms in Bangladesh.

Independent directors: Exploring the heterogeneous nature of multiple directorships

We examine the effect of independent directors’ (IDs’) heterogeneous directorships on performance and diversification of high growth firms in a sample of 1152 firm-year Australian listed company observations over the period 2007 to 2010. We find a positive association between some measures of IDs’ heterogeneous directorships and the firm performance of high-growth firms as measured by return on assets. We also find a positive association between IDs’ heterogeneous board ties and firm diversification. This study highlights that decisions concerning the appointment of IDs to corporate boards should be based on the strategic context of their other directorships. We extend the literature on multiple directorships by showing that it is not a narrow focus on the number of directorships as a proxy for reputation or busyness that matters. Instead, it is the precise nature of these directorships.

The Effects of Independent Directors’ Financial Knowledge and External Directorships on Firm Performance

Prior studies have provided some inconclusive findings regarding the effect of independent directors (INEDs) on firm performance. Drawing insights from the theories of resource dependence (RD), human capital (HC), and social capital (SC), this research argues that the mere presence of INEDs (motivation) is insufficient but rather the appointed INEDs need to have sufficient HC and SC (ability) in the forms of knowledge, expertise, and connection to effectively perform their roles. This study extends prior research by investigating the effects of INEDs’ financial knowledge (as indicator of INEDs’ HC) and INEDs’ external directorship (as indicator of INEDs’ external SC) on firm performance. A total of 300 non-financial firms listed on Bursa Malaysia in the year 2013 were selected using stratified random sampling method. Results indicated that INEDs’ financial knowledge does not have any relationship with firm performance. In contrast, an inverted U-shaped relationship between INEDs’ external directorship and firm performance was found, hence reflecting a trade-off between SC gain through external directorship and busyness effect. The findings of this research suggest that there are potential costs and benefits associated with INEDs’ SC. The findings also support the call for limiting the number of directorship an INED can have.

Literature Review on the Independence and Effectiveness of Independent Directors

This paper summarizes the literature on the independence and effectiveness of independent directors, finds indicators of independence and effectiveness, and finds the connection between the two.

Do Independent Directors Improve Firm Value? Evidence from the Great Recession

AbstractThe literature offers no clear evidence on the effect of independent directors on firm value. We argue that, during stressful times, firms may need more and better expert advice to navigate a crisis. Outside independent directors can provide such advice. So, the role of independent directors may be more pronounced during a stressful time. Consistent with this notion, we find that independent directors significantly improved firm value during the Great Recession of 2008. Specifically, a rise in the percentage of independent directors by one standard deviation would have improved firm value by 4.29% during the Great Recession. Outside the crisis period, however, our results do not show that independent directors increase firm value. Further analysis confirms the results, including random‐effects regressions, propensity score matching, instrumental‐variable regressions, as well as falsification tests. Our results are crucial as they demonstrate that the role of independent directors is different during stressful times than it is during normal times.

CEO career variety, firm innovativeness, and the interplay effects of independent directors

While firm innovativeness has been identified as a critical driver of firm growth and survival, the determinants of firm innovativeness have yet sufficiently explored. This study addresses this res...

Do Independent Directors Improve Firm Value? Evidence from the Great Recession

The literature offers no clear evidence on the effect of independent directors on firm value. We argue that, during stressful times, firms may need more and better expert advice to navigate a crisis. Outside independent directors can provide such advice. So, the role of independent directors may be more pronounced during a stressful time. Consistent with this notion, we find that independent directors significantly improved firm value during the Great Recession of 2008. Specifically, a rise in the percentage of independent directors by one standard deviation would have improved firm value by 4.29% during the Great Recession. Outside the crisis period, however, our results do not show that independent directors increase firm value. Further analysis confirms the results, including random-effects regressions, propensity score matching, instrumental-variable regressions, as well as falsification tests. Our results are crucial as they demonstrate that the role of independent directors is different during stressful times than it is during normal times.

The effect of independent directors on R&D investments

The effect of independent directors on R&D investments

The effect of independent directors on R&D investments

The effect of independent directors on R&D investments

Do independent director’s characteristics influence financial reporting quality?

ABSTRACTThis paper analyses whether the role played by independent directors in monitoring the financial reporting process is affected by certain personal characteristics. Specifically, we focus on the tenure and the number of directorships that independent directors hold. Our sample is composed of US listed firms for the period 2008–2012. After performing several robustness checks and sensitivity analyses, we have documented a positive association between board independence and financial reporting quality. However, this association is presented only for certain values of directors’ tenure and external directorships. This evidence suggests that the effectiveness of independent directors in their monitoring tasks is affected by these personal characteristics. In particular, our results indicate that long tenures and a high number of directorships compromise the ability to monitor. Therefore, this paper highlights the need for a more specific approach, based on the personal characteristics of independent directors, in order to study their influence on corporate decisions. Furthermore, our evidence has direct implications for companies in the selection of board members.

How do independent directors influence innovation productivity? A quasi-natural experiment

ABSTRACTDue to managerial myopia, managers may be reluctant to make long-term investment decisions that do not produce immediate results. Effective corporate governance can align managers’ short-term-oriented incentives with shareholders’ long-term interests. Because the board of directors is the paramount governance mechanism, we explore the role of board governance on managerial myopia. In particular, we investigate the effect of independent directors on corporate innovation. To minimize endogeneity, we exploit the passage of the Sarbanes–Oxley Act as an exogenous shock that raises board independence. Our difference-in-difference estimates show that board independence leads to significantly higher investments in innovation as well as higher innovation productivity. Our results are consequential as they show that board governance has a palpable effect on important corporate outcomes such as innovation productivity.

The Moderating Effects of Independent Directors’ Human Capital on the Relationship between Related Party Transactions and Firm Performance: Evidence from Malaysia

The Moderating Effects of Independent Directors’ Human Capital on the Relationship between Related Party Transactions and Firm Performance: Evidence from Malaysia

Outside Directors of Board and Agency Problems

In this paper, we examine the effects of board independence in family-controlled firms and non family-controlled firms. Modern corporations is characterized by the separation of management and ownership. Independent outside-directors may play important roles in monitoring inside managers. They may contribute to the reduction of agency costs and the increase of corporate performance. Therefore, this paper investigate the possible effects of independent directors on the asset utilization efficiency as a proxy of agency costs. In order to enhance the robustness of our analysis, we applied four different model specifications and used 2SLS as well as pooled OLS. We find that board independence is positively related to asset utilization, whereas firm size is negatively related to asset utilization. The proportion of dominating shareholders do not influence on the agency costs. Family ownership in family-controlled firms does not appear to have an impact on asset utilization. Received (August 05, 2015), Review Request(August 06, 2015), Review Result(August 21, 2015) Accepted(September 11, 2015), Published(October 31, 2015) (Corresponding Author) 712-714 Dept. Finance & Insurance, Daegu Univ., Jinryang, Kyungsan, Kyungbook, Korea email: bkgong@daegu.ac.kr * 이 논문은 2013학년도 대구대학교 학술연구비지원에 의한 논문임 (This research was supported by the Daegu University Research Grant, 2013). Outside directors of board and agency problems Copyright c 2015 HSST 372

Directors' and Officers' Liability Insurance, Independent Director Behavior and Governance Effect

We examine the effect of directors’ and officers’ liability insurance (D&O insurance) on the behavior of independent directors and the effectiveness of their governance role. We study three dimensions of director behavior – board meeting attendance, opinion and busyness. Based on director-level data of a sample of Chinese companies, we find a negative relation between D&O insurance and personal meeting attendance by independent directors and a positive relation between D&O insurance and meeting attendance by authorized representatives. The net effect on board meeting participation is negative as insured independent directors tend to incur greater attendance problem than their uninsured peers. We also find that D&O insurance has a negative impact on the willingness of independent directors to confront management and controlling shareholders by expressing a dissenting opinion in the face of agency conflicts. Moreover, insured independent directors are more inclined to take on additional directorships at other firms. We also find that D&O insurance reduces the effectiveness of independent directors in enhancing firm value and curbing firm violation. Our paper provides new evidence for the debate of the governance effect of D&O insurance and provides new insights into the incentives and behavior of independent directors.