← Search

Journal of Corporate Finance Vol. 43 2017

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

Sandra Cavaco1,2; Patricia Crifo3,4; Antoine Rebérioux5,6,7; Gwenael Roudaut8,4

1 Université Paris-Panthéon-Assas · 2 Laboratoire d'Économie Mathématique et de Microéconomie Appliquée · 3 Université Paris Nanterre · 4 École Polytechnique · 5 Laboratoire Dynamiques Sociales et Recomposition des Espaces · 6 Délégation Paris 7 · 7 Université Paris Cité · 8 AgroParisTech

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).

DOI
10.1016/j.jcorpfin.2017.01.004
Volume
43
Pages
106-121
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite