The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of Information Transaction Costs


  • Acknowledgments: We are grateful to Editor Jun-Koo Kang and three anonymous referees. We are also grateful to the Institute of Banking and Finance, Hyuk Choe, and Cheol-Won Yang for providing us with the data. We appreciate research grants from the Management Research Center and Institute of Banking and Finance at Seoul National University. Any remaining errors are entirely those of the authors.

Corresponding author: Jin-Young Jung, Visiting Scholar of Finance, Research Associate of Emerging Markets Institute, Johnson Graduate School of Management, Cornell University, 248 Sage Hall, Ithaca, NY 14853-6201, USA. Tel: +1-607-527-0612, Fax: +1-607-254-4590, email:


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.