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Independent directors and firm value of group-affiliated firms

journal contribution
posted on 2023-05-21, 04:26 authored by Amrinder KhosaAmrinder Khosa

Purpose: This study aims to examine the effect of board independence on firm valuation of group-affiliated firms in distinct Indian setting.

Design/methodology/approach: This study uses a sample of 317 listed firms comprising 1,350 firm-year observations for the period 2008-2012. The value-relevance model is used to examine the effect of board independence on market value of equity.

Findings: The distinct finding of an inverse relationship between board independence and firm value of group-affiliated firms in India illustrates that effective monitoring by outside directors is largely influenced by the institutional setting and ownership structure. This study does not find any evidence of different valuation when comparing non-family CEOs and family CEOs.

Practical implications: Independent directors play an important role to stop abusive use of related-party transactions in an environment where principal–principal conflict exists. The study’s findings will prove useful in determining whether one should rely merely on the independent status of outside directors or the influence of institutional setting on effective governance.

Originality/value: This paper contributes to the existing literature in the following ways: it helps to gain a better understanding of business groups which are characterised by unique governance structures and the dominance of controlling families on the board, which makes the external governance mechanisms (i.e. independent directors and non-family CEOs) ineffective and it illustrates that effective monitoring by outside directors is largely influenced by the institutional setting and ownership structure.

History

Publication title

International Journal of Accounting & Information Management

Volume

25

Pagination

217-236

ISSN

1834-7649

Department/School

TSBE

Publisher

Emerald Publishing Limited

Place of publication

United Kingdom

Rights statement

© Emerald Publishing

Repository Status

  • Restricted

Socio-economic Objectives

Financial services not elsewhere classified

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