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Directors’ tenure and their independence: capital market perspective


Malek, Mazrah and Saidin, Saidatunur Fauzi and Abdul Hamid, Mohamad Ali (2016) Directors’ tenure and their independence: capital market perspective. In: International Conference on Accounting Studies (ICAS) 2016, 15-18 August 2016, Langkawi, Kedah, Malaysia.

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Abstract

The independence of non-executive directors has long been a concern.The independent directors are not only required to be independent from management but also free from any other relationships which can interfere with their objectivity.Recently, the concern has been focused on long tenure of independent directors.Regulators seem to believe that long tenure may impair independence, hence attempts to limit the tenure have been recommended, even though it has not been made mandatory.However, theories concerning long tenure are contradictory and empirical evidences are weak. Earlier studies are based on theory-driven approach, which only examines the association between directors’ tenure and proxies of financial reporting quality.This study on the other hand, proposes a different approach based on earnings response coefficient model which not only examines investors’ perceptions but also their reactions.This is based on the widely accepted independence model where independence should not only be in the form of fact but also appearance. The interaction between directors’ tenure and earnings performance is hypothesized to have a significant negative relationship with the cumulative abnormal return.Low perceived earnings quality in financial accounts from long tenure by investors is expected to result in lower coefficient of earnings.This study will provide additional literature and knowledge on the effect of independent directors’ tenure. It can assist regulators in revising the requirement for directors’ tenure.

Item Type: Conference or Workshop Item (Paper)
Additional Information: ISBN 978-967-0910-27-7 Organized by: Institute for Strategic and Sustainable Accounting Development (ISSAD), Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
Uncontrolled Keywords: Capital market, directors, earnings response coefficients, independence, tenure.
Subjects: H Social Sciences > HG Finance
Divisions: Tunku Puteri Intan Safinaz School of Accountancy (TISSA)
Depositing User: Dr. Mazrah Malik @ Malek
Date Deposited: 01 Feb 2017 01:39
Last Modified: 01 Feb 2017 01:39
URI: http://repo.uum.edu.my/id/eprint/20796

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