An Empirical Analysis on the Board Composition Effects in Japanese Companies

Because inside directors are easily controlled by CEO, many scholars and practitioners believe that outside directors are important components for corporate governance. But, although outside directors will have more incentive to monitor managers' and firms' performance, inside directors have an advantage in information acquisition that will influence firms' performance. Thus, we can not ignore inside directors' role and board composition must be a problem in front of us. This paper examines this problem using the data of Japanese companies. The results here do not support the traditional opinions that more outside directors would help firms to improve their performance. Sometimes, more outside directors may bring negative effects to the firm. I also classify outside directors into 4 kinds. The results suggest that different kinds of outside directors play their different role in firms' operation.