The Microfoundation of Negative Effects of Outside Directors:

Board Quality and Decision‑Making

Abstract

This paper employs board quality researches and examines the relationship between board quality and decision-making. In particular, the paper explores the microfoundation of Watanabe (2017) that demonstrates the number of outside directors has negative relationship with investment escalation for the following two objectives: to investigate what kind of directors bring a negative impact and to clarify if there are outside directors who improve the quality of corporate governance. Our analysis focuses on the effects of directors’ real independence and financial expertise, and consequently shows that outside directors who lack both qualities have negative effects.