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Independent directors: less informed but better selected than affiliated board members?

Author

Listed:
  • Sandra Cavaco
  • Patricia Crifo

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Antoine Rebérioux

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Gwenael Roudaut

Abstract

This paper examines the relationships between independence, director unobservable ability and firm performance. We develop an original empirical strategy based on the AKM model to estimate separately director fixed effects (as a measure of individual ability) and firm fixed effects. We show that board independence has an ambiguous impact on corporate performance because of two opposing forces: one related to the director nomination process, the other one related to board functioning. On one hand, we report that independence is positively correlated with individual fixed effects, an evidence consistent with a nomination process of independent directors based on individual ability. On the other hand, and regarding board functioning, we show that independence, netted out individual ability, is negatively correlated with firm performance suggesting that independent board members experience an informational deficit (as compared to affiliated directors).
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sandra Cavaco & Patricia Crifo & Antoine Rebérioux & Gwenael Roudaut, 2017. "Independent directors: less informed but better selected than affiliated board members?," Post-Print hal-01549817, HAL.
    • Handle: RePEc:hal:journl:hal-01549817
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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