Do Independent Directors Add Value?

The Australian Stock Exchange's Principles of Good Corporate Governance and Best Practice Recommendations require all listed companies that do not have a majority of independent directors to explain their reasons. We show that independent (outside) directors seem to add value only where their firms have substantial amounts invested in growth options. In these circumstances, outside directors add significant value in their first year on the board and where they have at least three other board positions.     

Independent directors’ board networks and controlling shareholders’ tunneling behavior

As one of the channels by which board directors build important relationships, board networks can affect the governance role of independent directors. Defining director board networks as their connections based on direct ties they establish when serving on at least one common board, this paper explores the role of the network centrality of independent directors in restraining tunneling behavior by controlling shareholders in the Chinese capital market. Our empirical evidence shows that tunneling behavior by controlling shareholders is negatively related to the network centrality of independent directors and that this relationship is stronger when non-operating fund occupation is used as the measure of tunneling. The results of our study show that board networks can help independent directors to restrain tunneling behavior by large shareholders, which plays a positive role in corporate governance.     

独立董事:代理问题之一部分

本文研究独立董事制度。经理人的性质在于其是以经营才能方面的人力资本优势加入企业合约而实质拥有企业剩余控制权的人力资本所有者。当董事和董事会实质拥有企业剩余控制权时, 独立董事和内部董事都是企业的经理人, 董事会就是企业的管理层, 董事 (董事会) 与股东之间存在着实质的代理关系和代理问题。因此, 作为经理人的独立董事, 其本身首先是代理问题的一部分, 只有在其与股东之间的代理问题得到较好解决之后, 独立董事才可能成为一种有效的公司治理机制。本文认为, 有关各方缺乏对独立董事的经理人性质和其本身首先是代理问题的一部分的共同认知, 而这正是导致企业董事会的独立性与企业业绩之间不存在显著关系或呈现显著负相关关系的根本原因之所在。     

董事网络、独立董事治理与高管激励

独立董事的治理行为受到所处社会网络的影响。基于"董事在董事会同时任职的直接或间接联结关系"而形成的董事网络,本文利用社会网络分析方法检验了独立董事的网络特征对其发挥在促进高管激励有效性影响中的作用机理。结果发现:公司独立董事网络中心度越高,高管薪酬-业绩敏感性越强;与非国有上市公司相比,国有上市公司中独立董事网络中心度与高管薪酬-业绩敏感性的正相关关系更弱;进一步研究发现,用独立董事网络中心度解释的高管薪酬部分对未来业绩有促进作用。结论丰富了"网络和治理"研究的证据。     

Large Shareholders and Independent Director Equity Compensation

This paper investigates the use of equity compensation for independent directors, with a focus on the impact of large shareholders on a company's tendency to use equity compensation to align independent directors’ interests with those of shareholders. Based on data from 215 large Australian listed companies from 2005–2009, our analyses show that the use of equity incentive pay for independent directors is more likely when the aggregate ownership percentage of large shareholders is moderate, when there are multiple large shareholders and when the ownership stakes of large shareholders are more comparable. This paper contributes to the literature by providing new evidence of how various aspects of ownership dispersion affect compensation design for independent directors.     

独立董监之适任性、影响力与新上市柜公司初期评价之关系

台湾新上市柜(IPO)公司自2002年2月19日起须依照“上市上柜审查条例”设置二席以上独立董事和一席以上独立监察人,集团企业与总经理兼任董事长职务之公司依规定尚应聘任较多之席次。本研究探讨独立董监之适任性、影响力与IPO公司初期评价间之关系。实证结果指出,独立董事具执业会计师资格、曾担任上市柜公司的董事长、总经理或副总经理,以及相对于最终控制者之董事席次比率愈大,市场解读为适任性佳,愈具有影响力,对承销价制定、投资人初期评价有正向之作用。就独立监察人而言,并束发现独立监察人专业背景对IPO初期评价具攸关性。     

建立独立董事制度 完善公司治理结构

为了规范上市公司的法人治理结构，使董事会更公正地代表股东利益尤其是中小股东的利益，借鉴国际市场经验，笔者认为，在上市公司中引入独立董事制度是完善中国上市公司治理结构的重要步骤。     

Corporate Governance and Company Performance in Australia

This study tests whether the adoption of Australian best practice corporate governance recommendations is associated with financial performance measured by return on assets (ROA) and Tobin's Q. Results suggest that recommended corporate governance structures relating to the adoption of board sub‐committees are sound policy recommendations that enhance performance using the accounting measure ROA and the market‐based measure Tobin's Q. In contrast, the emphasis on board independence guidelines, specifically having outside independent directors, has a negative impact on ROA and Tobin's Q. However, there are conflicting significant results between the accounting and market measures for having a dual CEO/chairperson and board size.     

Independent directors and the propensity to pay dividends

Using data from 944 public companies in 2006, I examine how a firm's propensity to pay dividends is related to (i) board independence and (ii) independent directors' tenure, number of board seats (busy) and equity incentive compensation. After controlling for the effects of traditional economic, CEO entrenchment and ownership determinants of the propensity to pay dividends, I find evidence of a positive association between the propensity to pay and (i) board independence and (ii) director tenure, and a negative association between the propensity to pay and (i) busy directors and (ii) greater equity incentive compensation in the director pay structure. I find consistent results when the decision is to pay cash dividends or repurchase shares. In further tests, I find that equity incentive compensation in the independent director pay structure is the most pervasive determinant across other dividend measures such as dividend payout, total payout and repurchases. Overall, the findings suggest that the characteristics of independent directors are important determinants of the payout policy. The results also suggest that future corporate governance research could benefit from incorporating characteristics of independent directors rather than limiting governance measures to board independence especially when recent empirical evidence (Linck et al., 2008, 2009) shows convergence, and therefore, narrowing variation in the proportion of outsiders and insiders on a board.     

The impact of venture capital backing on the corporate governance of Australian initial public offerings

This study explores the role of venture capitalists on investee boards at the time of listing for 552 initial public offerings. Australian board structures and mechanisms are more similar to those in the US and the United Kingdom, but market activity characteristics are more similar to Japanese and German systems. Further, the Australian private equity market is relatively young compared to US and European markets. IPOs backed by venture capital have more independent boards, similar to US IPOs. Venture capitalists improve governance by using their networks to recruit specialist independent directors with industry experience.     

Board and Monitoring Committee Independence

This study focuses on the composition of boards of directors and their monitoring committees (audit and compensation) for large Australian companies. For firms whose boards use a committee structure, much of the monitoring responsibility of the board is expected to rest with the independent committee members. We document a positive association between the proportion of independent directors on the full board and its monitoring committees, and a greater proportion of independent directors on both audit and compensation committees than the full board. Our hypotheses tests involve an examination of the impact of other mechanisms used to control agency conflicts on full board and committee independence, and the association between this independence and firm value. We find that full board independence is associated with low management ownership and an absence of substantial shareholders. Audit committee independence is associated with reduced monitoring by debtholders when leverage is low. While we predict a positive relationship between board and monitoring committee independence and firm value, our results do not support this conjecture.     

中国上市银行独立董事制度的运行效率

以往的公司治理研究并没有考虑银行业的特殊性,因此对银行的治理问题不能简单地套用以往的研究结论.本文在充分考虑银行业治理的特殊性基础上,通过建立模型实证考察独立董事在银行中的运行效率.研究证实,由于银行股权制衡能力比较强,独立董事的监督职能被弱化,但是银行独立董事由于其专业背景以及广泛的社会关系,能够提高董事会决策效率,促进银行业绩的提升.研究还发现,独立董事的作用是有滞后性的.当期的独立董事能够明显地促进银行下一期的绩效.独立董事制度在国内上市银行中具有效率,能够促进银行的进一步发展.     

Independent audit committee members’ board tenure and audit fees

An independent audit committee is an audit committee on which all members are independent directors. This study examines whether independent audit committee members’ board tenure affects audit fees. On the basis of the prior literature, we formulate an unsigned hypothesis. This is because on the one hand, long board tenure audit committee members (defined as members with board tenure of 10 or more years) have greater incentives to protect their reputational capitals by purchasing increased audit effort, which positively affects audit fees. On the other hand, audit pricing reflects audit committee quality. Long board tenure audit committee members may have less need for increased audit effort because they can effectively oversee the financial reporting process themselves, which negatively affects audit fees. We find that audit fees are negatively associated with the proportion of long board tenure directors on the independent audit committee, consistent with the notion that audit committee members’ long board tenure results in lower audit effort.     

Independent directors and patenting strategies: Evidence from China

Despite the burgeoning literature on the contribution of independent boards to innovation, little is known about their influence on patenting strategies. Relying on finer-grained patent data of Chinese listed firms, this study tests the causal effects of board independence on patenting strategies, specifically, technological scope, technological proximity, and technological concentration. We show that having more independent directors on a board leads to a narrower technological scope and more overlap between current and prior technological trajectories, but there is no material impact on technological concentration. These effects are more pronounced among firms with market and technological dominance. Moreover, patenting strategies seem to benefit firms' financial and innovation outcomes, which highlights the value of independent directors as advisors.     

Independent technical directors and their effect on corporate innovation in China

As outside advisors, independent directors serve as both consultants and monitors. Based on empirical studies of corporate innovation and independent directors, we used data from listed firms in China from 2007 to 2017 to examine the effect of hiring independent technical directors on the board of directors. This study focused on a firm’s innovation performance and the extent to which this performance is influenced by the relevance of a director’s expertise to the activities of the firm. The results show that when the technical expertise of an independent director is relevant to the operational field of the firm, the firm should perform better in terms of innovation. This result is still significant when applying the two-stage instrumental variable method, showing a higher significance when using the exogenous event of the 2014 Wenfeng.plc case. Moreover, independent technical directors influence innovation primarily by encouraging firms to deepen their current field of research rather than expanding to other fields. Our findings can guide corporations to hire more relevant independent technical directors and can help the government design more accurate policies that promote innovation and entrepreneurship.     

Director expertise and co-option in industry superannuation funds?

This study examines whether independent directors who possess financial expertise and are independent from the CEO (i.e., non-co-opted) are associated with improved outcomes for industry superannuation funds. Our results highlight that independence alone is insufficient to improve fund outcomes. Instead, we find that only non-co-opted independent directors benefit fund members in terms of higher performance and lower fees. Moreover, we find that independent directors' financial expertise is not associated with fund performance and fees. Our study has implications for regulators and superannuation funds who are currently debating the need for one-third independent directors on the board of Australian superannuation funds.     

Internal Reporting of Derivatives: Some Australian Evidence

This paper provides evidence on the internal reporting of derivatives by Australian non-banking companies. The key findings, based on a survey of the top 100 Australian companies, are: (i) most companies have well established policies and procedures to deal with derivatives; (ii) for most companies the board of directors and the external auditors receive only monthly reports on derivatives, limiting their ability to monitor continuously the firms' exposure to derivatives; and (iii) none of the companies continuously revalues its derivatives and assesses the risks associated with its exposure, with more than half of the companies evaluating their exposures less frequently than weekly.     

Duration of equity overvaluation and managers’ choice to use aggressive underlying earnings disclosure and accrual-based earnings management: Australian evidence

This paper examines whether equity overvaluation duration influences managers’ choice of different earnings management mechanisms and how corporate governance and the Australian Securities and Investment Commission’s underlying earnings disclosure guidelines influence managers’ choices. The study samples Australian Securities Exchange 200 firms from 2009 to 2016. Findings show that on average, firms more likely engage in accrual-based earnings management in the early overvaluation stage. In later stages, firms more likely disclose underlying earnings aggressively to sustain overvaluation. Additionally, firms with a high proportion of independent directors on the board prefer to disclose underlying earnings aggressively to sustain the equity overvaluation; firms with a low proportion of independent directors prefer both accrual-based earnings management and aggressive underlying earnings disclosure to sustain the overvaluation. Moreover, firms that conform to the Commission’s underlying earnings disclosure guidelines use neither accrual-based earnings management nor aggressive underlying earnings disclosure to sustain overvaluation, but non-conforming firms use both mechanisms.     

Serving the truth: Do directors with media background improve financial reporting quality?

This study examines whether and how independent directors with media background affect financial reporting quality. Using a proprietary dataset of independent directors' backgrounds, we find that firms with media backgrounds directors sitting on the board have lower absolute discretionary accruals. Besides, the effect is more pronounced when media background independent directors are from a news agency, or the directors bear higher reputation cost. Furthermore, media independent directors play a monitoring role by saying “no” at the board meeting and increasing the probability of exposure to financial frauds to reduce discretionary accruals. Overall, our evidence suggests that media independent directors with higher integrity and reputation concerns could improve firms' financial quality.     

Covering or monitoring? Independent director connectedness and corporate fraud in China

This paper examines how independent directors’ social capital, as measured by their social network, affects corporate fraud. We find that firms with well-connected independent directors are less likely to commit fraud, supporting our monitoring effect hypothesis. This result is robust to a battery of tests. Further analyses show that the effect is stronger for firms with a relatively poor legal environment, for firms whose independent directors face strong reputation incentives and when independent directors are audit committee members. Moreover, we explore a potential economic mechanism of the effect and observe that well-connected independent directors are associated with less absenteeism and more dissension. Overall, our findings suggest that independent directors’ social capital plays an important role in corporate governance.