The association between independent directors and company value. Confronting evidence from two emerging markets

Date13 July 2020
DOIhttps://doi.org/10.1108/CG-08-2019-0263
Published date13 July 2020
Pages987-999
AuthorMaria Aluchna,Jyoti Devi Mahadeo,Bogumił Kamiński
Subject MatterStrategy,Corporate governance
The association between independent
directors and company value. Confronting
evidence from two emerging markets
Maria Aluchna, Jyoti Devi Mahadeo and BogumiłKami
nski
Abstract
Purpose The purpose of the paper is to advancethe understanding of the links between the presence
of independent directors(IDs) on boards and the company value in the specificcontext of concentrated
ownership. The authors apply theframework of agency theory to identify the monitoring effect of IDs in
two legalsystems common law and civil law.
Design/methodology/approach The authors testformulated hypotheses using a unique sample of 50
Mauritian and Polish companies listed during the years 2007 to 2015, amounting to a total of 394
observationsadopting the fixed effect panel model.
Findings The results of the panelmodel show a negative relationship betweenindependent directors
on boards and company value. Specifically, the effect remains negativefor companies operating in the
civil law system, whereas the stronger protection offered by common law offsets the effect of
concentratedownership, resulting in a non-correlationbetween independent directors on board andfirm
value.
Originality/value This study expandsthe understanding of the valueadded by independent directors,
addressingtheir monitoring role in the unfavorable contextof concentrated ownership. It also revealsthat
different legal frameworks of civil law and common law may impact the monitoring performed by
independentdirectors.
Keywords Ownership concentration, Independent directors, Common law, Civil law
Paper type Research paper
1. Introduction
Studies on independent directors (IDs) and their influence on company performance in
highly industrialized nations abound, yet few have looked at IDs impact on company
performance in less developed countries. Under the aegis of corporate governance
reform, IDs have become an accepted component of company boards (Peng, 2004;
Bezemer et al., 2007;Mahadeo et al., 2012). The study of Adams et al. (2010) found
fewer conflicts of interests on boards with IDs concluding that the role of IDs is
effective. In contrast, Ma and Khanna (2016, p. 1547) argued that “by far no solid
empirical evidence exists to suggest that independent directors add value to
shareholders”.
The presence of IDs signals ethical governance and assures that basic moral
standards are respected (Gir
aldez and Hurtado, 2008) . In addition, IDs bring in their
competences for processing strategy issues (Forbes and Milliken, 1999) and an
assortment of experiences that serves to augment the quality and effectiveness of work
done by company boards (Nicholson and Kiel, 2007). Several authors were critical of
the presence of IDs on the board (Adams and Mehran, 2012;Li et al., 2011;Daily et al.,
2003;Bhagat and Black, 1998).
Maria Aluchna is based at
Department of
Management Theory, SGH
Warsaw School of
Economics, Warsaw,
Poland.
Jyoti Devi Mahadeo is
based at Department of
Management, University of
Tasmania, Hobart,
Australia.
Bogumił Kami
nski is based
at Decision Analysis and
Support Unit, SGH Warsaw
School of Economics,
Warsaw, Poland.
Received 22 August 2019
Revised 28 January 2020
21 April 2020
5 June 2020
Accepted 11 June 2020
DOI 10.1108/CG-08-2019-0263 VOL. 20 NO. 6 2020, pp. 987-999, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 987

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