The Effects of Academic Outside Directors on Firm Performance: Evidence from Korean Chaebol Firms

We investigate the performance impact of academic outside directors in Korean Chaebol firms. Professors are traditionally considered popular candidates for outside directors in Korea. Indeed, academic directors take up 35% of the board members in the top 10 conglomerates of Korea. However, there are very few studies that investigate the role of academic outside directors regarding their monitoring and advisory role (White, Woidtke, Black, and Schweitzer, 2014; Francis, Hasan, and Wu, 2015). We categorize outside directors that are professors based on their academic backgrounds and observe whether academic directors have an incremental contribution to firm value. We also investigate whether academic directors effectively monitor senior management. Results indicate that academic directors are negatively associated with firm performance, and the existence of academic directors does not necessarily increase monitoring of the executives. We find that firms with academic directors are not related with higher CEO turnover-performance sensitivity or higher pay-for-performance. Instead, we find that firms with academic directors are more likely to manage earnings. Overall, our analysis indicates that academic outside directors do not contribute to the corporate governance of the boards of Korean Chaebol firms. Our paper contributes to the board independence and the board composition literature in Korea (Lee, Shim, and Choi, 2012; Shawn and Jung, 2015).