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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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    Cited by:

    1. ATM Adnan & Nisar Ahmed, 2019. "The Transformation Of The Corporate Governance Model: A Literature Review," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(3), pages 7-47.
    2. Byrka-Kita Katarzyna & Czerwiński Mateusz & Preś-Perepeczo Agnieszka, 2017. "Stock Market Reaction to CEO Appointment – Preliminary Results," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 25(2), pages 23-42, June.
    3. 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.
    4. Yung-Chuan Lee & Ming-Chang Wang, 2014. "Does the Appointment of Independent Directors Drive Multiple Effects?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(1), pages 69-88.
    5. 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.

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