IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v36y2009-01i1-2p161-184.html
   My bibliography  Save this article

Board Independence and Corporate Governance: Evidence From Director Resignations

Author

Listed:
  • 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. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.

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.
  • Handle: RePEc:bla:jbfnac:v:36:y:2009-01:i:1-2:p:161-184
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-5957.2008.02113.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Baysinger, Barry D & Butler, Henry N, 1985. "Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition," Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 101-124, Spring.
    2. Hall, Brian J. & Murphy, Kevin J., 2002. "Stock options for undiversified executives," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 3-42, February.
    3. Clifford G. Holderness & Randall S. Kroszner & Dennis P. Sheehan, 1999. "Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression," Journal of Finance, American Finance Association, vol. 54(2), pages 435-469, April.
    4. Byrd, John W. & Hickman, Kent A., 1992. "Do outside directors monitor managers? *1: Evidence from tender offer bids," Journal of Financial Economics, Elsevier, vol. 32(2), pages 195-221, October.
    5. Johnson, W. Bruce & Lys, Thomas, 1990. "The market for audit services : Evidence from voluntary auditor changes," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 281-308, January.
    6. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
    7. Benjamin E. Hermalin & Michael S. Weisbach, 1991. "The Effects of Board Composition and Direct Incentives on Firm Performance," Financial Management, Financial Management Association, vol. 20(4), Winter.
    8. Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
    9. Berry, Tammy K. & Paige Fields, L. & Wilkins, Michael S., 2006. "The interaction among multiple governance mechanisms in young newly public firms," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 449-466, June.
    10. Cheng, Shijun, 2008. "Board size and the variability of corporate performance," Journal of Financial Economics, Elsevier, vol. 87(1), pages 157-176, January.
    11. Rosenstein, Stuart & Wyatt, Jeffrey G., 1990. "Outside directors, board independence, and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 26(2), pages 175-191, August.
    12. Merle Erickson & Michelle Hanlon & Edward L. Maydew, 2006. "Is There a Link between Executive Equity Incentives and Accounting Fraud?," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 113-143, March.
    13. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
    14. Zhan Shu, Susan, 2000. "Auditor resignations: clientele effects and legal liability," Journal of Accounting and Economics, Elsevier, vol. 29(2), pages 173-205, April.
    15. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    16. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
    17. Dahya, Jay & McConnell, John J., 2005. "Outside directors and corporate board decisions," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 37-60, March.
    18. repec:bla:joares:v:21:y:1983:i:2:p:534-544 is not listed on IDEAS
    19. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 08-96, Wharton School Rodney L. White Center for Financial Research.
    20. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 377-397, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Muravyev, Alexander & Berezinets, Irina & Ilina, Yulia, 2014. "The structure of corporate boards and private benefits of control: Evidence from the Russian stock exchange," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 247-261.
    2. 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.
    3. 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.
    4. Etienne Redor, 2015. "Does board diversity matter? Evidence from the market reaction to directors' departures," Economics Bulletin, AccessEcon, vol. 35(2), pages 1434-1442.
    5. 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.
    6. repec:wsi:qjfxxx:v:07:y:2017:i:03:n:s2010139217500069 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:36:y:2009-01:i:1-2:p:161-184. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.