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The effects of independent directors’ financial knowledge and external directorships on firm performance

Prior studies have provided some inconclusive findings regarding the effect of independent directors (INEDs) on firm performance. Drawing insights from the theories of resource dependence (RD), human capital (HC), and social capital (SC), this research argues that the mere presence of INEDs (motiv...

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Main Authors: Hamezah Md Nor,, Intan Maiza Abd Rahman,
Format: Article
Language:English
Published: Penerbit Universiti Kebangsaan Malaysia 2019
Online Access:http://journalarticle.ukm.my/19185/1/35880-118974-1-PB.pdf
http://journalarticle.ukm.my/19185/
https://ejournal.ukm.my/ajac/issue/view/1225
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spelling my-ukm.journal.191852022-08-02T03:33:49Z http://journalarticle.ukm.my/19185/ The effects of independent directors’ financial knowledge and external directorships on firm performance Hamezah Md Nor, Intan Maiza Abd Rahman, Prior studies have provided some inconclusive findings regarding the effect of independent directors (INEDs) on firm performance. Drawing insights from the theories of resource dependence (RD), human capital (HC), and social capital (SC), this research argues that the mere presence of INEDs (motivation) is insufficient but rather the appointed INEDs need to have sufficient HC and SC (ability) in the forms of knowledge, expertise, and connection to effectively perform their roles. This study extends prior research by investigating the effects of INEDs’ financial knowledge (as indicator of INEDs’ HC) and INEDs’ external directorship (as indicator of INEDs’ external SC) on firm performance. A total of 300 non-financial firms listed on Bursa Malaysia in the year 2013 were selected using stratified random sampling method. Results indicated that INEDs’ financial knowledge does not have any relationship with firm performance. In contrast, an inverted U-shaped relationship between INEDs’ external directorship and firm performance was found, hence reflecting a trade-off between SC gain through external directorship and busyness effect. The findings of this research suggest that there are potential costs and benefits associated with INEDs’ SC. The findings also support the call for limiting the number of directorship an INED can have. Penerbit Universiti Kebangsaan Malaysia 2019 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/19185/1/35880-118974-1-PB.pdf Hamezah Md Nor, and Intan Maiza Abd Rahman, (2019) The effects of independent directors’ financial knowledge and external directorships on firm performance. Asian Journal of Accounting and Governance, 12 . pp. 107-118. ISSN 2180-3838 https://ejournal.ukm.my/ajac/issue/view/1225
institution Universiti Kebangsaan Malaysia
building Tun Sri Lanang Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Kebangsaan Malaysia
content_source UKM Journal Article Repository
url_provider http://journalarticle.ukm.my/
language English
description Prior studies have provided some inconclusive findings regarding the effect of independent directors (INEDs) on firm performance. Drawing insights from the theories of resource dependence (RD), human capital (HC), and social capital (SC), this research argues that the mere presence of INEDs (motivation) is insufficient but rather the appointed INEDs need to have sufficient HC and SC (ability) in the forms of knowledge, expertise, and connection to effectively perform their roles. This study extends prior research by investigating the effects of INEDs’ financial knowledge (as indicator of INEDs’ HC) and INEDs’ external directorship (as indicator of INEDs’ external SC) on firm performance. A total of 300 non-financial firms listed on Bursa Malaysia in the year 2013 were selected using stratified random sampling method. Results indicated that INEDs’ financial knowledge does not have any relationship with firm performance. In contrast, an inverted U-shaped relationship between INEDs’ external directorship and firm performance was found, hence reflecting a trade-off between SC gain through external directorship and busyness effect. The findings of this research suggest that there are potential costs and benefits associated with INEDs’ SC. The findings also support the call for limiting the number of directorship an INED can have.
format Article
author Hamezah Md Nor,
Intan Maiza Abd Rahman,
spellingShingle Hamezah Md Nor,
Intan Maiza Abd Rahman,
The effects of independent directors’ financial knowledge and external directorships on firm performance
author_facet Hamezah Md Nor,
Intan Maiza Abd Rahman,
author_sort Hamezah Md Nor,
title The effects of independent directors’ financial knowledge and external directorships on firm performance
title_short The effects of independent directors’ financial knowledge and external directorships on firm performance
title_full The effects of independent directors’ financial knowledge and external directorships on firm performance
title_fullStr The effects of independent directors’ financial knowledge and external directorships on firm performance
title_full_unstemmed The effects of independent directors’ financial knowledge and external directorships on firm performance
title_sort effects of independent directors’ financial knowledge and external directorships on firm performance
publisher Penerbit Universiti Kebangsaan Malaysia
publishDate 2019
url http://journalarticle.ukm.my/19185/1/35880-118974-1-PB.pdf
http://journalarticle.ukm.my/19185/
https://ejournal.ukm.my/ajac/issue/view/1225
_version_ 1740826822168281088
score 13.211869

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