Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 362

Full Length Research Paper

Some empirical literature evidence on the effects of independent directors on firm performance

Ronald Chibuike Iwu-Egwuonwu
Department of Business Administration, University of Abuja, Nigeria.
Email: [email protected]

  •  Accepted: 30 August 2010
  •  Published: 30 September 2010

Abstract

 

This work is a review of existing literature on the effectiveness of independent directors at ensuring superior firm performance. The study finds that the evidence in this regard are not only mixed, but may also be culture-bound because while some studies, especially most of those structured and conducted in the US, find no positive relationship between the presence of independence directors on the board and the performance of those firms, some others, especially those structured and conducted in the orient find a positive relationship. Can this be on account of differences in culture, resulting from environmental and unique behavioral reasons? However, most findings agree that the presence of independent directors on boards of firms actually improves governance of those firms, although the quality of governance may not necessarily translate to high firm performance. It is argued that although research evidence has not conclusively fingered independent directors to have positive effects on corporate performance, the study still believes in the conventional wisdom that they really do affect corporate performance positively. But supermajority independent director boards may so excessively check management flexibility, in the bid to produce good corporate governance, that the activities of executive directors to raise performance may become stifled.

 

Key words: Independent directors, firm performance, quality of governance, corporate performance, firm value, culture-bound, good corporate governance, non-executive directors.