Board Independence and Corporate Governance: Evidence From Director Resignations |
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| Authors: | Manu Gupta L. Paige Fields |
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| Affiliation: | The authors are respectively from the Department of Finance, Insurance and Real Estate, Virginia Commonwealth University;and the Department of Finance, Mays School of Business, Texas A&M University. They would like to thank Mike Wilkins, Don Fraser, Christo Pirinski, Martin Walker, an anonymous referee, workshop participants at Texas A&M University, University of Missouri Columbia, Fairfield University, and Southern Illinois University Edwardsville, as well as participants at the 2005 Eastern Finance Association meetings and the 2005 Financial Management Association meetings for valuable feedback. |
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| Abstract: | Abstract: As is evident from recent changes in NYSE and NASDAQ listing requirements, board independence is assumed to be an important and effective governance mechanism. However, the empirical evidence regarding the value of board independence is mixed. We examine board member resignation announcements and their perceived importance in the context of firms' existing governance structures. We find that outside director resignations appear to send negative signals to market participants. However, this market reaction is less negative when the board is more independent before the departure and when institutional ownership is high, but is more negative for higher levels of officer and director ownership and CEO incentive compensation. |
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| Keywords: | director resignations board independence |
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