Grey Directors on Philippine Corporate Boards

Authors

Ailyn A. Shi, De La Salle University, Manila, PhilippinesFollow
Evan Lance C. Li Liao, De La Salle University, Manila, Philippines
Angelo A. Unite, De La Salle University, Manila, Philippines
Michael J. Sullivan, Lee Business School, University of Nevada, Las Vegas

JEL Classification System

G32, G38

Abstract

Independent directors on a firm’s board are theorized to enhance corporate governance by mitigating agency conflicts. However, some independent directors, referred to as grey directors, have prior relationships with managers that may hamper this role. Using data for Philippine firms, we construct a measure that categorizes independent directors as truly independent or grey, based on the 12 criteria used to define board independence as stipulated in the 2017 Philippine Corporate Governance Code. This measure is used to examine which firms are more likely to appoint grey directors and how the presence of grey directors affects firm performance. Consistent with agency theory, we find that firms with higher ownership concentration are more likely to have grey directors. However, we find that the presence of these grey directors does not adversely affect firm performance. We conclude that while grey directors are common among Philippine firms, their presence does not appear to escalate agency problems.

Recommended Citation

Shi, Ailyn A.; Li Liao, Evan Lance C.; Unite, Angelo A.; and Sullivan, Michael J. (2022) "Grey Directors on Philippine Corporate Boards," DLSU Business & Economics Review: Vol. 31: No. 2, Article 2.
DOI: https://doi.org/10.59588/2243-786X.1185
Available at: https://animorepository.dlsu.edu.ph/ber/vol31/iss2/2