Evaluation of board reforms: An examination of the appointment of outside directors

Using a unique dataset and program evaluation methodologies, this paper investigated the performance of share prices in response to the newly introduced outside director system in Korea, where family businesses have been dominant. First, we find that the positive impact of the appointment of outside directors on returns is observed only when the proportion of outsiders on a board increases significantly and their appointment is accompanied by the lead-and-lag effect of regulatory reforms. Second, the buy-and-hold abnormal return is more evident for independent firms than for chaebol affiliates, due partly to the high monitoring costs for cross-shareholdings among affiliates.