TY - JOUR
T1 - Independent directors' reputation incentives and firm performance
T2 - An Australian perspective
AU - Le, Quyen
AU - Vafaei, Alireza
AU - Ahmed, Kamran
AU - Kutubi, Shawgat
PY - 2022/4
Y1 - 2022/4
N2 - This study investigates the association between independent directors' reputation incentives and firm performance using Australia's top 500 listed firms for 2004–2019. Analyses reveal that firm performance is positively (negatively) associated with the proportion of independent directors viewing their directorships as more (less) prestigious. We address endogeneity issues by employing propensity score matching (PSM), Heckman two-stage approach, difference-in-differences analysis and our results are robust. While the ASX recommendation with regard to the independent director composition has an intuitive appeal, we show that increasing the presence of independent directors on company boards is not necessarily a channel for better firm performance. Reputational concerns should be accounted for when evaluating how well independent directors protect shareholders' interests, as well as appointing or retaining independent directors.
AB - This study investigates the association between independent directors' reputation incentives and firm performance using Australia's top 500 listed firms for 2004–2019. Analyses reveal that firm performance is positively (negatively) associated with the proportion of independent directors viewing their directorships as more (less) prestigious. We address endogeneity issues by employing propensity score matching (PSM), Heckman two-stage approach, difference-in-differences analysis and our results are robust. While the ASX recommendation with regard to the independent director composition has an intuitive appeal, we show that increasing the presence of independent directors on company boards is not necessarily a channel for better firm performance. Reputational concerns should be accounted for when evaluating how well independent directors protect shareholders' interests, as well as appointing or retaining independent directors.
KW - Australia
KW - Corporate governance
KW - Firm performance
KW - Independent directors
KW - Reputation incentives
UR - http://www.scopus.com/inward/record.url?scp=85123643757&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2022.101709
DO - 10.1016/j.pacfin.2022.101709
M3 - Article
AN - SCOPUS:85123643757
SN - 0927-538X
VL - 72
SP - 1
EP - 28
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
M1 - 101709
ER -