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Does the Appointment of an Outside Director Increase Firm Value? Evidence from Taiwan

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  • Hsu-Huei Huang
  • Paochung Hsu
  • Haider A. Khan
  • Yun-Lin Yu

Abstract

We examine stock market reactions to the announcement of outside director appointments in Taiwan. Our empirical findings indicate significantly positive reactions to such announcements, as cumulative abnormal returns reach 4.776 percent. We also find that abnormal returns are positive and higher when a firm has each of the following characteristics: poorer prior corporate performance, the chief executive officer as chairman of the board, larger free cash flow, and a higher degree of information asymmetry. The announcement effect decreases as the number of outside directors increases. Our findings differ from existing literature mainly because outside director appointment is not mandatory in Taiwan. This suggests that the announcement effects could be different across countries. The appointment appears to be more beneficial for a country with poor corporate governance mechanisms.

Suggested Citation

  • Hsu-Huei Huang & Paochung Hsu & Haider A. Khan & Yun-Lin Yu, 2008. "Does the Appointment of an Outside Director Increase Firm Value? Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(3), pages 66-80, May.
  • Handle: RePEc:mes:emfitr:v:44:y:2008:i:3:p:66-80
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    References listed on IDEAS

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    Cited by:

    1. Chung-Hua Shen & Kun-Li Lin, 2010. "The Impact of Corporate Governance on the Relationship Between Fundamental Information Analysis and Stock Returns," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(5), pages 90-105, September.
    2. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    3. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    4. Chih-Wei Lee & Ming-Jen Chang, 2011. "Announcement Effects and Asymmetric Volatility in Industry Stock Returns: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(2), pages 48-61, March.
    5. Chiung-Ju Liang & Ying-Li Lin & Tzu-Tsang Huang, 2011. "Does Endogenously Determined Ownership Matter on Performance? Dynamic Evidence from the Emerging Taiwan Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 120-133, November.
    6. Hueh-Chen Lin & Chin-Sheng Huang & Jack J. W. Yang, 2015. "Market Reaction to Voluntary and Mandatory Announcements of Independent Director Appointments," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 125-135.
    7. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    8. Yu Chuan Huang & Nai Wen Hou & Yao Jen Cheng, 2012. "Illegal Insider Trading and Corporate Governance: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 6-22, September.
    9. Chiung-Ju Liang & Ying-Li Lin & Tzu-Tsang Huang, 2011. "Does Endogenously Determined Ownership Matter on Performance? Dynamic Evidence from the Emerging Taiwan Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 120-133, November.
    10. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    11. Sunila Jabeen & Farzana Shaheen & Azad Haider, 2015. "Determinants of Deviation from Inflation Targets in Pakistan: A Vector Autoregressive Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 709-715.
    12. Chih-Wei Lee & Ming-Jen Chang, 2011. "Announcement Effects and Asymmetric Volatility in Industry Stock Returns: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(2), pages 48-61, March.
    13. Yu Chuan Huang & Nai Wen Hou & Yao Jen Cheng, 2012. "Illegal Insider Trading and Corporate Governance: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 6-22, September.
    14. Chung-Hua Shen & Kun-Li Lin, 2010. "The Impact of Corporate Governance on the Relationship Between Fundamental Information Analysis and Stock Returns," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(5), pages 90-105, September.

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