This paper investigates the value of academic independent directors (ADs) by exploring an unexpected policy shock that forces ADs to resign from Chinese listed firms. Around the announcement of the policy, stock prices of firms with ADs drop by 2.2%, which translates to a loss of 135M RMB (around $19.3M). ADs with backgrounds that are related to the firms’ primary line of business, with connections to industry associations, and who hold top positions in prestigious universities are more valuable to firms. ADs with business backgrounds are more valuable when they serve on particular board subcommittees. Moreover, ADs miss fewer board meetings. In the long run, firm fundamentals and independent directors’ monitoring and advising efficiency deteriorate significantly after ADs resign. Our paper sheds new light on the value of independent directors.
Liu, Bibo and Tian, Xuan and Wei, Wei and Zhou, Zhen, The Value of Academic Independent Directors (December 27, 2021).