Does the independence of independent directors matter?

Rafel Crespi-Cladera and Bartolomé Pascual-Fuster (tomeu.pascual@uib.es)

Journal of Corporate Finance, 2014, vol. 28, issue C, 116-134

Abstract: This paper analyzes the characteristics of firms that declare board directors as independents, although the directors are not strictly independent, and examines the consequences in terms of performance and corporate governance outcomes. Based on publicly available information, eight criteria of “independence” used to examine a panel of Spanish listed firms classify 14.2% of the directors as strictly independent, whereas the firms classify 32.5% of the board as independent directors. Firms with dispersed ownership structures misclassify directors more frequently than do firms with large controlling owners. In terms of consequences, we find weak evidence of a negative relation between misclassification and a firm's future operating performance. However, no relation is found between independents' misclassification and several relevant outcomes of the primary delegated committees with monitoring roles: the audit committee and the nomination and remuneration committee. There is no significance with regard to the non-strictly independent measures explaining executive directors' compensation, CEO turnover, audit qualifications or earning management behavior.

Keywords: Board strict independence; Corporate governance; Executive compensation; CEO turnover; Audit qualifications; Earnings management (search for similar items in EconPapers)
JEL-codes: G30 G34 K22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:28:y:2014:i:c:p:116-134

DOI: 10.1016/j.jcorpfin.2013.12.009

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