Board independence and the variability of firm performance: Evidence from an exogenous regulatory shock

Bird, R; Huang, P; Lu, Y

Board independence and the variability of firm performance: Evidence from an exogenous regulatory shock

Bird, R

Huang, P Lu, Y

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Publication Type:: Journal Article
Citation:: Australian Journal of Management, 2018, 43 (1), pp. 3 - 26
Issue Date:: 2018-02-01

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Field	Value	Language
dc.contributor.author	Bird, R https://orcid.org/0000-0003-0524-9377	en_US
dc.contributor.author	Huang, P	en_US
dc.contributor.author	Lu, Y	en_US
dc.date.issued	2018-02-01	en_US
dc.identifier.citation	Australian Journal of Management, 2018, 43 (1), pp. 3 - 26	en_US
dc.identifier.issn	0312-8962	en_US
dc.identifier.uri	http://hdl.handle.net/10453/130064
dc.description.abstract	© 2017, © The Author(s) 2017. We use the 2003 NYSE and NASDAQ listing rules for board independence as an exogenous shock to estimate the causal relation between board independence and the variability of firm performance. Using a difference-in-difference approach, we find that non-compliant firms without a majority of independent directors observe a larger decrease in the variability of firm performance than compliant firms. In particular, board independence is negatively associated with the variability of (1) monthly stock returns, (2) ROA, (3) Tobin’s Q, (4) analyst forecast inaccuracy, (5) accounting accruals, (6) extraordinary items, (7) capital expenditures, (8) cash holdings and (9) the frequency of acquisition activities. We conclude that increased board independence weakens the CEO’s power over the board and restrains corporate risk-taking; thus, decisions made by firms with more independent boards are less extreme, resulting in less variability of firm performance.	en_US
dc.relation.ispartof	Australian Journal of Management	en_US
dc.relation.isbasedon	10.1177/0312896217708227	en_US
dc.title	Board independence and the variability of firm performance: Evidence from an exogenous regulatory shock	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	43	en_US
utslib.for	1503 Business and Management	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	43	en_US

Abstract:

© 2017, © The Author(s) 2017. We use the 2003 NYSE and NASDAQ listing rules for board independence as an exogenous shock to estimate the causal relation between board independence and the variability of firm performance. Using a difference-in-difference approach, we find that non-compliant firms without a majority of independent directors observe a larger decrease in the variability of firm performance than compliant firms. In particular, board independence is negatively associated with the variability of (1) monthly stock returns, (2) ROA, (3) Tobin’s Q, (4) analyst forecast inaccuracy, (5) accounting accruals, (6) extraordinary items, (7) capital expenditures, (8) cash holdings and (9) the frequency of acquisition activities. We conclude that increased board independence weakens the CEO’s power over the board and restrains corporate risk-taking; thus, decisions made by firms with more independent boards are less extreme, resulting in less variability of firm performance.

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http://hdl.handle.net/10453/130064