Does the Appointment of an Outside Director Increase Firm Value? Evidence from Taiwan
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.
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Volume (Year): 44 (2008)
Issue (Month): 3 (May)
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