Does board independence influence asset redeployability? Evidence from a quasi-natural experiment

• DOI: https://doi.org/10.1108/CG-06-2021-0218
• Published date: 09 September 2021
• Date: 09 September 2021
• Pages: 302-316
• Subject Matter: Strategy,Corporate governance
• Author: Chaiyuth Padungsaksawasdi,Sirimon Treepongkaruna,Pornsit Jiraporn,Ali Uyar

Does board independence inf‌luence asset

redeployability? Evidence from a

quasi-natural experiment

Chaiyuth Padungsaksawasdi, Sirimon Treepongkaruna, Pornsit Jiraporn and Ali Uyar

Abstract

Purpose –Exploiting an exogenousregulatory shock and a novel measureof asset redeployability, this

paper aims to explore the effect of independent directors on asset redeployability. In particular, the

authors use an innovativemeasure of asset redeployability recently developedby Kim and Kung (2016).

This novelindex has been rapidly adopted in recent literature.

Design/methodology/approach –Relying on a quasi-natural experiment, the authors execute a

difference-in-difference analysis based on an exogenousregulatory shock to board independence. To

mitigate endogeneity and demonstrate causation, the authors also performpropensity score matching,

instrumental-variableanalysis and Oster’s(2019) approach for testing coefficient stability.

Findings –The difference-in-differenceestimates show that firms forced to raise board independence

have significantly fewer redeployable assets after the shock than those not required to change board

composition. This is consistent with the managerial myopia hypothesis. Subject to more intense

monitoring, managersbehave more myopically, focusing more on assets thatare currently useful to the

firm and less on redeployabilityin the future.

Originality/value –The study makes key contributions to the literature. First, the study is the first to examine

the effect of board governance on asset redeployability. Second, the authors exploit an innovative index of

asset redeployability that has been recently constructed in the literature. Third, by using a natural

experiment, the results are much more likely to reflect causality than merely an association.

Keywords Sarbanes-Oxley, Board independence, Independent directors, Investment irreversibility,

Redeployability

Paper type Research paper

1. Introduction

Asset redeployability refers to the extent to which assets of a firm have alternative use or can

be liquidated at reasonable prices with low transaction costs (Signo ri and Vismara, 2017;Kim

and Kung, 2017;Rong et al., 2020;Hasan et al.,2021). Investment irreversibility is one of the

most crucial determinants of corporate investment decisions. Specifically, investment

irreversibility discourages firms from making investments, especia lly during uncertain times.

The costs associated with redeploying assets are an imp ortant source of investment

irreversibility (Kim and Kung, 2017). In this study, we contribute to the literature on investment

irreversibility (Bernanke, 1983;McDonald and Siegel, 1986;Abel and Eberly, 1996;Kim and

Kung, 2017) by exploring the effect of board independence on asset redeployability. In the

corporate governance literature, board independence has been on e of the most vital aspects

of the board of directors and has generated an immense volume of r esearch (Kilic¸et al., 2015;

Toumi et al., 2016;Alipour et al.,2019;Guizani and Abdalkrim, 2021). Exploiting an exogenous

regulatory shock as a quasi-natural experiment, we investigate how a rise in board

independence induced by an exogenous factor influences asset redeployabil ity.

Chaiyuth

Padungsaksawasdi is

based at the Department of

Finance, Thammasat

Business School,

Thammasat University,

Bangkok, Thailand.

Sirimon Treepongkaruna is

based at University of

Western Australia, Perth,

Australia, and SASIN

School of Management,

Chulalongkorn University,

Bangkok, Thailand. Pornsit

Jiraporn is based at Great

Valley School of Graduate

Professional Studies,

Pennsylvania State

University, in Malvern,

Pennsylvania. Ali Uyar is

based at Excelia Business

School, Excelia Group, La

Rochelle, France.

JEL classif‌ication –G34, G38,

G31

Received 11 June 2021

Revised 16 August 2021

Accepted 18 August 2021

Part of this research was

carried out while Pornsit

Jiraporn served as a visiting

professor at SASIN School of

Management in Bangkok,

Thailand.

PAGE 302 jCORPORATE GOVERNANCE jVOL. 22 NO. 2 2022,pp. 302-316, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-06-2021-0218