The King Reports, Independent Non-Executive Directors and Firm Valuation on the Johannesburg Stock Exchange
AbstractSouth Africa (SA) has pursued corporate governance reforms in the form of the 1994 and 2002 King Reports. This paper examines the association between the presence of independent non-executive directors (INEDs) and market valuation of a sample of 169 firms listed on the Johannesburg Stock Exchange (JSE) in SA from 2002 to 2007. Our results suggest a statistically significant and positive relationship between the presence of INEDs and firm valuation. By contrast, we find no statistically significant association between the presence of non-executive directors (NEDs) and firm valuation. Our findings are robust across a number of econometric models that control for different types of endogeneity problems, non-linear associations and firm valuation proxies. Our findings have important policy and regulatory implications. Whereas our evidence that more independent corporate boards’ impacts positively on firm valuation provides support for the recommendations of the King Reports, it shows that to be meaningful, director independence has to be more carefully and strictly defined.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 45812.
Date of creation: 29 Aug 2011
Date of revision:
Publication status: Published in Corporate Ownership and Control 1.9(2011): pp. 428-440
King reports; Corporate governance; Firm valuation; Independent non-executive directors; Johannesburg stock exchange; South Africa; Endogeneity;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
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