Do independent boards effectively monitor management? Evidence from Japan during the financial crisis

The financial crisis that originated in the collapse of the US subprime loan market had a serious impact on the global economy; various companies in all industries experienced serious performance declines. For example, Toyota Motor Corp., a Japanese representative automobile manufacturer, fell into a negative operating income situation for the accounting year ended March 2009, reporting red ink for the first time since the end of World War II. Such serious performance decline engenders severe conflicts among corporate stakeholders. This chapter investigates whether outside directors effectively monitor management in the interest of shareholders. Specifically, the chapter examines the relationship between board independence, management turnover and dividend policy in Japan during the financial crisis. Corporate board structures recently have received much research attention. This increased attention is largely attributable to the Sarbanes-Oxley Act (SOX), which mandates that the audit committees of listed companies comprise a majority of independent members.