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The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of Information Transaction Costs *
Author(s) -
Joh Sung Wook,
Jung JinYoung
Publication year - 2012
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/j.2041-6156.2012.01069.x
Subject(s) - corporate governance , business , enterprise value , transaction cost , information asymmetry , accounting , database transaction , value (mathematics) , independence (probability theory) , perspective (graphical) , market value , industrial organization , finance , statistics , mathematics , machine learning , artificial intelligence , computer science , programming language
This paper examines whether the problem of high information asymmetry lowers the positive impact of board independence on firm value. Independent directors are outside directors who have never had business and professional ties with the firm. We adopt various proxies for information transaction costs from the market microstructure literature and traditional measures, such as firm size, firm age, number of analyst reports, governance scores, credit ratings, and institutional ownership, to see how they interact. Using data on publicly listed firms and their directors between 1999 and 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm has lower information transaction costs. The results suggest that the monitoring role of independent directors is limited when transferring firm‐specific information is costly.