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The value of independent directors: Evidence from sudden deaths

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  • Nguyen, Bang Dang
  • Nielsen, Kasper Meisner
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    Abstract

    We investigate contributions of independent directors to shareholder value by examining stock price reactions to sudden deaths in the US from 1994 to 2007. We find, first, that following director death stock prices drop by 0.85% on average. Second, the degree of independence and board structure determine the marginal value of independent directors. Third, independence is more valuable in crucial board functions. Finally, controlling for director-invariant heterogeneity using a fixed effect approach, we identify the value of independence over and above the value of individual skills and competences. Overall, our results suggest that independent directors provide a valuable service to shareholders.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 98 (2010)
    Issue (Month): 3 (December)
    Pages: 550-567

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    Handle: RePEc:eee:jfinec:v:98:y:2010:i:3:p:550-567

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Independent director Sudden death Board of directors Corporate governance Firm value;

    References

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    Cited by:
    1. Becker, Sascha O. & Hvide, Hans K, 2013. "Do entrepreneurs matter?," CEPR Discussion Papers 9295, C.E.P.R. Discussion Papers.
    2. Kathy Fogel & Liping Ma & Randall Morck, 2014. "Powerful Independent Directors," NBER Working Papers 19809, National Bureau of Economic Research, Inc.
    3. Ferdinand T. Siagian & Elok Tresnaningsih, 2011. "The impact of independent directors and independent audit committees on earnings quality reported by Indonesian firms," Asian Review of Accounting, Emerald Group Publishing, vol. 19(3), pages 192-207, October.
    4. von Meyerinck, Felix & Oesch, David & Schmid, Markus, 2012. "Is Director Industry Experience Valuable?," Working Papers on Finance 1217, University of St. Gallen, School of Finance.
    5. Allen N. Berger & Thomas Kick & Klaus Schaeck, 2012. "Executive Board Composition and Bank Risk Taking," Working Papers 12004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    6. repec:cge:warwcg:108 is not listed on IDEAS
    7. Drobetz, Wolfgang & von Meyerinck, Felix & Oesch, David & Schmid, Markus, . "Is Board Industry Experience a Corporate Governance Mechanism?," Working Papers on Finance 1401, University of St. Gallen, School of Finance.
    8. Fidanoski, Filip & Mateska, Vesna & Simeonovski, Kiril, 2013. "Corporate Governance and Bank Performance: Evidence from Macedonia," MPRA Paper 46773, University Library of Munich, Germany, revised Mar 2013.
    9. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2012. "Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 527-554.

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