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Stock Market Reaction to the Appointment of Outside Directors


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  • Steve Lin
  • Peter F. Pope
  • Steven Young
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    This paper examines the UK stock market's reaction to the appointment of outside (non-executive) board members. Tests conducted using a sample of 714 appointments reported by "EXTEL" between 1 July, 1993 and 31 December, 1996, indicate a strong interaction between appointee characteristics and the magnitude of the agency problem: the share price reaction to outside director appointments is significantly more favourable when board ownership is low "and" the appointee possesses strong ex ante monitoring incentives. In contrast, the appointment of independent and manager-affiliated outside directors does not appear to benefit shareholders on average, even in the presence of serious agency problems. Copyright Blackwell Publishers Ltd 2003.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 30 (2003-04)
    Issue (Month): 3-4 ()
    Pages: 351-382

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    Handle: RePEc:bla:jbfnac:v:30:y:2003-04:i:3-4:p:351-382

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    Cited by:
    1. Abdullah Iqbal & Norman Strong, 2010. "The effect of corporate governance on earnings management around UK rights issues," International Journal of Managerial Finance, Emerald Group Publishing, vol. 6(3), pages 168-189, July.
    2. Yan-leung Cheung & J. Thomas Connelly & Piman Limpaphayom & Lynda Zhou, 2005. "Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market," Working Papers 222005, Hong Kong Institute for Monetary Research.
    3. Chou, Hsin-I & Li, Hui & Yin, Xiangkang, 2010. "The effects of financial distress and capital structure on the work effort of outside directors," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 300-312, June.
    4. Salim Chahine & Assem Safieddine, 2011. "Is corporate governance different for the Lebanese banking system?," Journal of Management and Governance, Springer, vol. 15(2), pages 207-226, May.
    5. Thomas Kirchmaier & Michael G. Kollo, 2006. "The role of prestige and networks in outside director appointment," LSE Research Online Documents on Economics 24635, London School of Economics and Political Science, LSE Library.
    6. Hsu-Huei Huang & Paochung Hsu & Haider A. Khan & Yun-Lin Yu, 2006. "Does the Appointment of the Outside Director Increase Firm Value? The Evidence from Taiwan," CIRJE F-Series CIRJE-F-427, CIRJE, Faculty of Economics, University of Tokyo.


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