“Does Board Independence Improve Firm Performance? Outcome of a Quasi-Natural Experiment”

Abstract: Since 2003 the Australian Securities Exchange Corporate Governance Council (ASX) has required that all listed firms either adopt a majority of “independent” board members without links either to management or to substantial shareholders (i.e., 5% or greater shareholding) or “if not, why not”.

While this close to a global standard, it is the opposite to the NYSE and NASDAQ exchanges who are explicit in stating that significant shareholding is no barrier to independence from management. Over a period of 9 years to 2011, 551 of our total sample of 969 firms (or 57% of our sample) responded positively to the recommendation, with the bulk adopting in 2003 and 2004. In this paper we analyse the effect on firm performance of this quasi-natural experiment.

Marc-Oliver Fischer†
Peter L. Swan‡
Australian School of Business, University of New South Wales
First Draft: May 8, 2013
This Draft: November 18, 2013


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