The Non-Correlation Between Board Independence and Long-Term Firm Performance

ABSTRACT The boards of directors of American public companies are dominated by independent directors. Many commentators and institutional investors believe that a board, composed almost entirely of independent directors, is an important component of good corporate governance. The empirical evidence reported in this Article challenges that conventional wisdom. We conduct the first large-sample, long-horizon study of whether the degree of board independence (proxied by the fraction of independent directors minus the fraction of inside directors on a company's board) correlates with various measures of the longterm performance of large American firms. We find evidence that low-profitability firms increase the…