Board independence and firm value: A quasi-natural experiment using Taiwanese data

We examine the impact on firm value of independent directors based on Taiwanese firms. Using the changes in independent director composition mandated by the Amendments of Security and Exchange Act in Taiwan as a quasi-natural experiment, we document the arguably causal and negative effect of independent directors on firm value in both the short and long run. We also find that, in response to this act, firms have tended to replace existing non-independent directors, rather than simply adding new independent directors. We also find that the new independent directors have the same qualifications as those replaced non-independent directors but are costlier and busier. The evidence reflects the short supply of qualified independent directors and might explain the negative valuation effect.