Using information on business, professional and social ties of directors, we examine how the outside director’s independence and friendliness affect firm value. Controlling for endogeneity problems, independent outsiders improve firm value on average, while friendly outsiders have negative impact. However, the effectiveness of board independence (friendliness) depends on the monitoring cost/benefits or advising environments about the firm; when the monitoring cost is low or the monitoring is beneficial in firms with higher agency costs, independent boards as monitor perform better, and when the firm faces financial volatility, distress, or M&A threats, friendly boards as advisors increase firm value more than independent boards. We also find that friendly outsiders have more positive impacts as facilitators on firm performance whose business is exclusively transacted in domestic markets or whose lobbing activities are brisk. Our results suggest that the effectiveness of boards’ multiple roles as monitor, advisor, and facilitator depends on their independence and corporate environments.
JEL classification: G32; G34; G38; K22
Keywords: Board independence, Friendly boards, Firm value, Information asymmetry, Social ties, Monitoring
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공지사항
[2011년 제 4차] A Friend in Need is a Friend Indeed: The Role of Ou
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2011-12-07