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

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  • Nattawut Jenwittayaroje
  • Pornsit Jiraporn

Abstract

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.

Suggested Citation

  • Nattawut Jenwittayaroje & Pornsit Jiraporn, 2019. "Do Independent Directors Improve Firm Value? Evidence from the Great Recession," International Review of Finance, International Review of Finance Ltd., vol. 19(1), pages 207-222, March.
    • Handle: RePEc:bla:irvfin:v:19:y:2019:i:1:p:207-222
    DOI: 10.1111/irfi.12163
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    Cited by:

    1. Etienne Redor & Magnus Blomkvist, 2021. "Do all inside and affiliated directors hold the same value for shareholders?," Economics Bulletin, AccessEcon, vol. 41(3), pages 882-895.
    2. Xiyan Bai & Chan Lyu, 2023. "Executive’s Environmental Protection Background and Corporate Green Innovation: Evidence from China," Sustainability, MDPI, vol. 15(5), pages 1-20, February.
    3. Liqiang Chen & Hong Fan & Xiaofei Song, 2023. "Impact of professor‐directors on Chinese firms' environmental performance," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 696-720, December.
    4. Etienne Redor, 2021. "Do all inside and affiliated directors hold the same value for shareholders?," Post-Print hal-03290640, HAL.
    5. Suparatana Tanthanongsakkun & Sirimon Treepongkaruna & Pornsit Jiraporn, 2023. "Carbon emissions, corporate governance, and staggered boards," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 769-780, January.

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