Do Independent Directors Improve Firm Performance? Evidence from India

With increase in the number of corporate frauds, shareholders, analysts and the general public look forward to IndDirs as the saviours who can help prevent such corporate misdoings. This study attempts to find out if having more IndDirs in the board influences firm profitability. Using panel data consisting of all listed Indian companies in the sample period of 2003-2019, it finds that proportion of IndDirs is negatively related to firm profitability. Control variables-board size, firm size (firmSize), leverage, type of industry (IndType), firm age, ownership, and year 2014-are included in the analysis. Even after arresting their confounding effects on firm performance, negative impact of proportion of IndDirs on firm performance continues. Plausible reasons for this negative relationship are offered. This study has relevance in the wake of mandatory provisions in the Companies Act, 2013, for presence of IndDirs in the board of Indian firms.