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Board Independence and Corporate Governance: Evidence From Director Resignations
Author(s) -
Gupta Manu,
Fields L. Paige
Publication year - 2009
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2008.02113.x
Subject(s) - corporate governance , accounting , independence (probability theory) , business , context (archaeology) , listing (finance) , incentive , empirical evidence , audit committee , officer , economics , finance , market economy , law , political science , paleontology , philosophy , statistics , mathematics , epistemology , biology
As is evident from recent changes in NYSE and NASDAQ listing requirements, board independence is assumed to be an important and effective governance mechanism. However, the empirical evidence regarding the value of board independence is mixed. We examine board member resignation announcements and their perceived importance in the context of firms' existing governance structures. We find that outside director resignations appear to send negative signals to market participants. However, this market reaction is less negative when the board is more independent before the departure and when institutional ownership is high, but is more negative for higher levels of officer and director ownership and CEO incentive compensation.