Independent Directors, Critical Mass and Firm Performance: Empirical Evidence from a Natural Experiment in Taiwan

44 Pages Posted: 11 Nov 2018

See all articles by Yaoyao Fan

Yaoyao Fan

Sun Yat-sen University (SYSU) - International School of Business and Finance (ISBE)

Yuxiang Jiang

GalaxyAsset management; East China University of Science and Technology (ECUST)

Mao-Feng Kao

National Dong Hwa University

Hong Liu

Loughborough University - School of Business and Economics

Date Written: October 19, 2018

Abstract

We examine the impact on firm performance of independent directors as a minority group. We find that, when there are only one or two independent directors, firm performance suffers, while with three or more independent directors it improves. We use the changes in independent director composition mandated by the Amendment of Security and Exchange Act in Taiwan as a natural experiment for identifying firms to be studied. Our results confirm the tokenism and critical mass theories reported in other board composition literature.

Keywords: Independent directors; Critical mass; Firm performance in Taiwan

JEL Classification: G30; M41

Suggested Citation

Fan, Yaoyao and Jiang, Yuxiang and Kao, Mao-Feng and Liu, Hong, Independent Directors, Critical Mass and Firm Performance: Empirical Evidence from a Natural Experiment in Taiwan (October 19, 2018). Available at SSRN: https://ssrn.com/abstract=3269697 or http://dx.doi.org/10.2139/ssrn.3269697

Yaoyao Fan

Sun Yat-sen University (SYSU) - International School of Business and Finance (ISBE) ( email )

Tangjiawan, Zhuhai Campus
Room 901, 9th Floor, Administration Building
Zhuhai, Guangdong 519082
China

Yuxiang Jiang

GalaxyAsset management ( email )

shanghai
century avenue
shanghai, shanghai
China

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

Mao-Feng Kao

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng, Hualien 97401
Taiwan
+886-3-8903079 (Phone)

Hong Liu (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

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