• Information asymmetry;
  • Outside directors;
  • Market microstructure;
  • Firm value;
  • Board independence
  • G14;
  • G32;
  • G34;
  • G38;
  • K22


This paper examines whether the problem of high information asymmetry lowers the positive impact of board independence on firm value. Independent directors are outside directors who have never had business and professional ties with the firm. We adopt various proxies for information transaction costs from the market microstructure literature and traditional measures, such as firm size, firm age, number of analyst reports, governance scores, credit ratings, and institutional ownership, to see how they interact. Using data on publicly listed firms and their directors between 1999 and 2006 in Korea, we find that independent directors are correlated with higher corporate value when the firm has lower information transaction costs. The results suggest that the monitoring role of independent directors is limited when transferring firm-specific information is costly.