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

Maria Aluchna (Department of Management Theory, SGH Warsaw School of Economics, Warsaw, Poland)
Jyoti Devi Mahadeo (Department of Management, University of Tasmania, Hobart, Australia)
Bogumił Kamiński (Decision Analysis and Support Unit, SGH Warsaw School of Economics, Warsaw, Poland)

Corporate Governance

ISSN: 1472-0701

Publication date: 13 July 2020

Abstract

Purpose

The purpose of the paper is to advance the understanding of the links between the presence of independent directors (IDs) on boards and the company value in the specific context of concentrated ownership. The authors apply the framework of agency theory to identify the monitoring effect of IDs in two legal systems – common law and civil law.

Design/methodology/approach

The authors test formulated hypotheses using a unique sample of 50 Mauritian and Polish companies listed during the years 2007 to 2015, amounting to a total of 394 observations adopting the fixed effect panel model.

Findings

The results of the panel model show a negative relationship between independent directors on boards and company value. Specifically, the effect remains negative for companies operating in the civil law system, whereas the stronger protection offered by common law offsets the effect of concentrated ownership, resulting in a non-correlation between independent directors on board and firm value.

Originality/value

This study expands the understanding of the value added by independent directors, addressing their monitoring role in the unfavorable context of concentrated ownership. It also reveals that different legal frameworks of civil law and common law may impact the monitoring performed by independent directors.

Keywords

  • Ownership concentration
  • Independent directors
  • Common law
  • Civil law

Citation

Aluchna, M., Mahadeo, J.D. and Kamiński, B. (2020), "The association between independent directors and company value. Confronting evidence from two emerging markets", Corporate Governance, Vol. 20 No. 6, pp. 987-999. https://doi.org/10.1108/CG-08-2019-0263

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Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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