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Asian Review of Financial Research, Vol., No..
pp.490~516
pp.490~516
Effects of board independence on firm value from the information transaction costs perspective
Sung Wook Joh College of Business Administration Seoul National University, Korea
Jin-Young Chung College of Business Administration Seoul National University, Korea
This paper examines whether high information asymmetry problems lower positive impacts of board independence on firm value. Independent directors are outside directors who have no ties with the firm at either a professional or personal level. We adopt various proxies for information transaction costs from market microstructure literature and volatile corporate situations such as growth opportunities, risks, credit rating, or financial distress. Using data on publicly listed firms and their directors from 1999 to 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm faces lower information asymmetry. These results suggest that the monitoring role of independent directors is limited when transferring firm-specific information is costly.
Sung Wook Joh
Jin-Young Chung
This paper examines whether high information asymmetry problems lower positive impacts of board independence on firm value. Independent directors are outside directors who have no ties with the firm at either a professional or personal level. We adopt various proxies for information transaction costs from market microstructure literature and volatile corporate situations such as growth opportunities, risks, credit rating, or financial distress. Using data on publicly listed firms and their directors from 1999 to 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm faces lower information asymmetry. These results suggest that the monitoring role of independent directors is limited when transferring firm-specific information is costly.
Information asymmetry,Outside directors,Market microstructure,Firm value,Board independence
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