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The association between independent directors and company value. Confronting evidence from two emerging markets

The association between independent directors and company value. Confronting evidence from two... PurposeThe purpose of the paper is to advance the understanding of the links between the presence of independent directors (IDs) on boards and the company value in the specific context of concentrated ownership. The authors apply the framework of agency theory to identify the monitoring effect of IDs in two legal systems – common law and civil law.Design/methodology/approachThe authors test formulated hypotheses using a unique sample of 50 Mauritian and Polish companies listed during the years 2007 to 2015, amounting to a total of 394 observations adopting the fixed effect panel model.FindingsThe results of the panel model show a negative relationship between independent directors on boards and company value. Specifically, the effect remains negative for companies operating in the civil law system, whereas the stronger protection offered by common law offsets the effect of concentrated ownership, resulting in a non-correlation between independent directors on board and firm value.Originality/valueThis study expands the understanding of the value added by independent directors, addressing their monitoring role in the unfavorable context of concentrated ownership. It also reveals that different legal frameworks of civil law and common law may impact the monitoring performed by independent directors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

The association between independent directors and company value. Confronting evidence from two emerging markets

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1472-0701
DOI
10.1108/CG-08-2019-0263
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of the paper is to advance the understanding of the links between the presence of independent directors (IDs) on boards and the company value in the specific context of concentrated ownership. The authors apply the framework of agency theory to identify the monitoring effect of IDs in two legal systems – common law and civil law.Design/methodology/approachThe authors test formulated hypotheses using a unique sample of 50 Mauritian and Polish companies listed during the years 2007 to 2015, amounting to a total of 394 observations adopting the fixed effect panel model.FindingsThe results of the panel model show a negative relationship between independent directors on boards and company value. Specifically, the effect remains negative for companies operating in the civil law system, whereas the stronger protection offered by common law offsets the effect of concentrated ownership, resulting in a non-correlation between independent directors on board and firm value.Originality/valueThis study expands the understanding of the value added by independent directors, addressing their monitoring role in the unfavorable context of concentrated ownership. It also reveals that different legal frameworks of civil law and common law may impact the monitoring performed by independent directors.

Journal

Corporate GovernanceEmerald Publishing

Published: Jul 13, 2020

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