Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of Information Transaction Costs *

The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of... This paper examines whether the problem of high information asymmetry lowers the positive impact of board independence on firm value. Independent directors are outside directors who have never had business and professional ties with the firm. We adopt various proxies for information transaction costs from the market microstructure literature and traditional measures, such as firm size, firm age, number of analyst reports, governance scores, credit ratings, and institutional ownership, to see how they interact. Using data on publicly listed firms and their directors between 1999 and 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm has lower information transaction costs. The results suggest that the monitoring role of independent directors is limited when transferring firm‐specific information is costly. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of Information Transaction Costs *

Download PDF
19 pages

Loading next page...
 
/lp/wiley/the-effects-of-outside-board-on-firm-value-in-the-emerging-market-from-sHfYsyGu02
Publisher
Wiley
Copyright
© 2012 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/j.2041-6156.2012.01069.x
Publisher site
See Article on Publisher Site

Abstract

This paper examines whether the problem of high information asymmetry lowers the positive impact of board independence on firm value. Independent directors are outside directors who have never had business and professional ties with the firm. We adopt various proxies for information transaction costs from the market microstructure literature and traditional measures, such as firm size, firm age, number of analyst reports, governance scores, credit ratings, and institutional ownership, to see how they interact. Using data on publicly listed firms and their directors between 1999 and 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm has lower information transaction costs. The results suggest that the monitoring role of independent directors is limited when transferring firm‐specific information is costly.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Apr 1, 2012

References

  • Market microstructure and asset pricing: On the compensation for illiquidity in stock returns
    Brennan, Brennan; Subrahmanyam, Subrahmanyam
  • Comparisons of information asymmetry measures in the Korean stock market
    Choe, Choe; Yang, Yang
  • The value of outside directors: Evidence from corporate governance reform in Korea
    Choi, Choi; Park, Park; Yoo, Yoo
  • A simple approximation of Tobin’s Q
    Chung, Chung; Pruitt, Pruitt
  • International corporate governance
    Denis, Denis; McConnell, McConnell
  • When are outside directors effective?
    Duchin, Duchin; Matsusaka, Matsusaka; Ozbas, Ozbas
  • Separation of ownership and control
    Fama, Fama; Jensen, Jensen
  • Variation in trading volume, return volatility, and trading costs: Evidence on recent price formation models
    Foster, Foster; Viswanathan, Viswanathan
  • Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies
    Gaver, Gaver; Gaver, Gaver
  • Estimating the components of the bid/ask spread
    Glosten, Glosten; Harris, Harris
  • Bid, ask, and transaction prices in a specialist market with heterogeneously informed traders
    Glosten, Glosten; Milgrom, Milgrom
  • Measuring the information content of stock trades
    Hasbrouck, Hasbrouck
  • The effects of board composition and direct incentives on firm performance
    Hermalin, Hermalin; Weisbach, Weisbach
  • Boards of directors as an endogenously determined institution: A survey of the economic literature
    Hermalin, Hermalin; Weisbach, Weisbach
  • Corporate governance in New Zealand: The effect of the 1993 Companies Act on the relation between board composition and firm performance
    Hossain, Hossain; Prevost, Prevost; Rao, Rao
  • A reexamination of the conglomerate merger wave in the 1960s: An internal capital markets view
    Hubbard, Hubbard; Palia, Palia
  • Theory of the firm: Managerial behavior, agency costs and ownership structure
    Jensen, Jensen; Meckling, Meckling
  • Elite attitudes toward multinational firms: The Korean experience
    Jeon, Jeon; Ahn, Ahn
  • Appointments of outsiders to Japanese boards: Determinants and implications for managers
    Kaplan, Kaplan; Minton, Minton
  • Board network characteristics and firm performance in Korea
    Kim, Kim
  • The proportion and social capital of outside directors and their impacts on firm value: Evidence from Korea
    Kim, Kim
  • Firm performance and board committee structure
    Klein, Klein
  • The determinants of board structure
    Linck, Linck; Netter, Netter; Yang, Yang
  • Boards of directors and capital structure: Alternative forms of corporate restructuring
    Maug, Maug
  • Management ownership and market valuation: An empirical analysis
    Morck, Morck; Shleifer, Shleifer; Vishny, Vishny
  • Determinants of board size and composition: A theory of corporate boards
    Raheja, Raheja
  • Contingent political capital and international alliances: Evidence from South Korea
    Siegel, Siegel
  • The association between board structure and firm Performance in the UK
    Vafeas, Vafeas; Theodorou, Theodorou
  • Outside directors and CEO turnover
    Weisbach, Weisbach