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Board Independence and Corporate Governance: Evidence From Director Resignations

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  • Manu Gupta
  • L. Paige Fields

Abstract

As is evident from recent changes in NYSE and NASDAQ listing requirements, board independence is assumed to be an important and effective governance mechanism. However, the empirical evidence regarding the value of board independence is mixed. We examine board member resignation announcements and their perceived importance in the context of firms' existing governance structures. We find that outside director resignations appear to send negative signals to market participants. However, this market reaction is less negative when the board is more independent before the departure and when institutional ownership is high, but is more negative for higher levels of officer and director ownership and CEO incentive compensation.

Suggested Citation

  • Manu Gupta & L. Paige Fields, 2009. "Board Independence and Corporate Governance: Evidence From Director Resignations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1‐2), pages 161-184, January.
    • Handle: RePEc:bla:jbfnac:v:36:y:2009:i:1-2:p:161-184
    DOI: 10.1111/j.1468-5957.2008.02113.x
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    2. Bliss, Barbara A. & Partnoy, Frank & Furchtgott, Michael, 2018. "Information bundling and securities litigation," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 61-84.
    3. Burak Pirgaip & Mehmet Berktay Akyüz, 2020. "To Be Rated or To Be Indexed: Corporate Governance Rating Experience in Borsa Istanbul," Istanbul Business Research, Istanbul University Business School, vol. 49(2), pages 271-300, November.
    4. Matteo P. Arena & Michaël Dewally & Sarah W. Peck, 2020. "Fight or flee: Outside director departures prior to contested management buyout offers," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(5), pages 274-293, September.
    5. Feng Liu & Hui Lin & Huiying Wu, 2018. "Political Connections and Firm Value in China: An Event Study," Journal of Business Ethics, Springer, vol. 152(2), pages 551-571, October.
    6. Valentina Franca & Anja Strojin Štampar, 2021. "Board‐level employee representative independence: Myth or reality? Theoretical analysis and empirical research—the case for Slovenia," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(4), pages 569-585, December.
    7. Yanmin Gao & Jeong-Bon Kim & Desmond Tsang & Haibin Wu, 2017. "Go before the whistle blows: an empirical analysis of director turnover and financial fraud," Review of Accounting Studies, Springer, vol. 22(1), pages 320-360, March.
    8. Angelica Gonzalez & Paul André, 2014. "Board Effectiveness and Short Termism," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 185-209, January.
    9. Sudipta Basu & Eunju (Ivy) Lee, 2022. "Antecedents of and outcomes after finance committee use," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(3-4), pages 491-535, March.
    10. Li, Yi & Wang, Pengfei & Zhang, Wei, 2023. "Does online interaction between firms and investors reduce stock price crash risk?," The British Accounting Review, Elsevier, vol. 55(4).
    11. Etienne Redor, 2015. "Does board diversity matter? Evidence from the market reaction to directors' departures," Economics Bulletin, AccessEcon, vol. 35(2), pages 1434-1442.
    12. Singh, Preet Deep & Singla, Chitra, 2016. "Impact of Independent Directors’ Resignations on Firm’s Governance," IIMA Working Papers WP2016-03-36, Indian Institute of Management Ahmedabad, Research and Publication Department.
    13. Ntim, Collins G., 2011. "The King Reports, Independent Non-Executive Directors and Firm Valuation on the Johannesburg Stock Exchange," MPRA Paper 45812, University Library of Munich, Germany.
    14. Anup Agrawal & Mark A. Chen, 2017. "Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-58, September.

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