The Effect of Social Ties of Outside Board Directors and Their Independence on Firm Value

Kim, Jaekyung; Shin, Jhinyoung

Korean Journal of Financial Studies 2016;45(4):713-739.
Published online September 30, 2016.

Jaekyung Kim, Jhinyoung Shin

이사회의 독립성이 기업가치에 미치는 영향

김재경, 신진영

Abstract

This study empirically examines the effect of board independence on firm value by measuring social ties of outside directors with executive directors as well as controlling shareholder. The measurement of social ties of outside directors is deduced by adopting the concept in social network analysis. The results show that strong social ties between outside directors and executive directors reduces the level of the independence of board, and thereby results in a significant and negative effect on firm value. However, strong social ties between outside directors and the controlling shareholders have no significant relationship with the firm value. These empirical evidences suggest that outside director system of Korea which was intended to improve board’s independence should be reformed. Additionally, this study contributes to the application of different measures of board independence by adopting the technique of social network analysis.

Key Words: 기업지배구조,사내이사,사외이사,사회적 연결,지배주주,Controlling Shareholder,Corporate Governance,Executive Director,Outside Director,Social Tie