Effects of Outside Directors on Firms’ Investments and Performance: Evidence from a Quasi-Natural Experiment in Japan

Author Name MORIKAWA Masayuki (Vice President, RIETI)
Creation Date/NO. September 2019 19-E-072
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This study presents evidence on the impact of outside directors on firms' investment behavior and performance with a focus on the recent quasi-natural experiment that rapidly increased the number of outside directors in listed firms. Using a panel of Japanese firms, we compare listed and unlisted firms and conduct instrumental variable estimations to examine causal relationships. The results indicate that the rapid increase in the number of outside directors among listed firms did not promote active investments or risk-taking behavior. In addition, it had no significant impacts on the profitability and productivity of the firms at least in the short run.

This is the English version of the Japanese Discussion Paper (19-J-030) with some additional information and changes.

Forthcoming: Morikawa, Masayuki. "Effects of outside directors on firms' investments and performance: Evidence from a quasi-natural experiment in Japan," Journal of the Japanese and International Economies.