Where is Independent Director Efficacy?

Chin‐Jung Luan and Ming‐Je Tang

Corporate Governance: An International Review, 2007, vol. 15, issue 4, 636-643

Abstract: Theoretically and empirically, the linkage between outside directors and firm performance is not conclusive in previous studies. We suspect that the mixed results are due to the failure to meet the requirements of the independence of outside directors. As the Taiwanese government has a rigorous definition of outside director independence, we employ a data set from Taiwan to test the impact of independent outside director assignment on a firm's performance. Our findings suggest that after controlling for a firm's past performance, independent outside director appointments do have a significantly positive impact on a firm's performance, and outperforming firms may have better performance but not significantly when assigning outside directors due to their absorptive capacity.

Date: 2007
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