Are independent directors enhancing value in the post mandate period?: Empirical evidence from India

Abstract

We extend the corporate governance literature by examining the effect of independent directors on firm value in the context of regulatory stipulation, considering all firms listed on the National Stock Exchange from 2004 to 2017. We examined the impact during the pre‐and post‐regulation period using the difference in difference analysis. The results indicate a positive effect of board independence on firm value. Our results show that the presence of independent directors is high in the post‐mandate period compared to the pre‐mandate period, indicating that firms are complying with regulations with more than 50% of independent directors on the board. Our results align with resource dependency theory, providing evidence that a higher number of outsider directors on a board acts as an additional resource for firms. When CEO duality is absent, the role of independent directors decreases and consequently the regulatory mandate based on CEO duality is effective. Thus, independent directors are significant providers of resources to a firm's governance in emerging economies, especially in the post‐mandate period.

Board composition and firm performance: empirical evidence from Indian companies

“…The second variable is the executive directors (PED), calculated as the proportion of executive directors on the board (Manna et al. , 2016; Saravanan et al. , 2021; Yammeesri and Herath, 2010).…”

“…As a consequence, independent directors bring an inverse impact on the performance of companies (Kyere and Ausloos, 2020). One reason is the lack of confidential information from the executive directors, which constrains independent directors to take up their monitoring role effectively and intensifies agency conflicts (Brennan, 2006;Kyere and Ausloos, 2020;Saravanan et al, 2021). Masulis and Zhang (2019) and Core et al (1999) provided the commitment of independent directors to other companies as another reason for their ineffectiveness.…”

“…However, mixed and often contradictory findings have been reported by them. For example, Saravanan et al (2021), Agrawal and Lakshmi (2020), Puni and Anlesinya (2020), Bouteska (2020), Kao et al (2019), Pucheta-Mart ınez and Gallego-Alvarez ( 2019) and Manna et al (2016) have obtained favourable results when studying the relationship between independent directors and firm performance. However, Arayssi et al (2020), Mishra (2020), Fan et al (2020), Shan (2019) and Hamdan and Al Mubarak (2017) found an inverse association between these two variables.…”

“…The first independent variable is board size (BS), measured as the aggregate of the total number of directors on the board (Agrawal and Lakshmi, 2020;Mishra and Kapil, 2017;Puni and Anlesinya, 2020). The second variable is the executive directors (PED), calculated as the proportion of executive directors on the board (Manna et al, 2016;Saravanan et al, 2021;Yammeesri and Herath, 2010). They are the permanent employees of the company and are fully involved in its daily operations.…”

Quality of Management and Its Influence on Market Valuation: A Study of the Indian Pharmaceutical Industry

“…However, the authors have not evaluated the impact of management quality on market valuation. Saravanan et al (2021) and Bird et al (2018) examine the impact of directorship on the success of firms. The authors use the structure of the board and independent directors as two independent variables.…”