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The boards of directors of American public companies are dominated by independent directors. Many commentators and institutional investors believe that a "monitoring board," composed almost entirely of independent directors, is an important component of good corporate governance. The empirical evidence reported in this Article challenges that conventional wisdom. We conduct the first large-sample, long-horizon study of whether the degree of board independence (proxied by the fraction of independent directors minus the fraction of inside directors on a company's board) correlates with various measures of the long-term performance of large American firms. We find evidence that low-profitability firms increase the independence of their boards of directors. But there is no evidence that this strategy works. Firms with more independent boards do not perform better than other firms. Our results support efforts by firms to experiment with board structures that depart from the conventional monitoring board. Note: This paper is identical to the article as published in the Journal of Corporation Law. The published article is available, without the Stanford Law and Economics cover page, at http://ssrn.com/abstract=313026

The United States has many banks that are small relative to large corporations and play a limited role in corporate governance, and a well developed stock marke

We survey the evidence on the relationship between board composition and firm performance. Boards of directors of American public companies that have a majorit

Life under threat of deportation: What is the effect on a child of having parents who are at risk of deportation as unauthorized immigrants? Hainmueller et al. developed a quasi-experimental protocol to address this complicated question. They selected mothers who had birthdates either just before or just after the cutoff for the United States' Deferred Action for Childhood Arrivals (DACA) program. Children whose mothers were protected from deportation by DACA had 50% fewer diagnoses of adjustment and anxiety disorder than children with mothers whose birthdates, by coincidence, preceded the cutoff and who thus were not protected. Science , this issue p. 1041

Credible causal inference in accounting and finance research often comes from natural experiments. These experiments can be exploited using several shock-based research designs, including difference in differences (DID), shock-based instrumental variable (shock-IV), and regression discontinuity. We study here shock-IV designs using panel data. We identify all shock-IV papers in two broad data sets and reexamine three of the apparently strongest papers—Desai and Dharmapala [Desai M, Dharmapala D (2009) Corporate tax avoidance and firm value. Rev. Econom. Statist. 91:537–546.], Duchin et al. [Duchin R, Matsusaka J, Ozbas O (2010) When are outside directors effective? J. Financial Econom. 95:195–214.], and Iliev [Iliev P (2010) The effect of SOX Section 404: Costs, earnings quality, and stock prices. J. Finance 65:1163–1196.]. After we enforce covariate balance and common support for treated and control firms, the instruments in all three papers are unusable—they are no longer significant in the first stage. All three papers also show nonparallel pretreatment trends on outcomes or core covariates. The problems with these papers generalize to our full sample and to other papers exploiting the same shocks as Duchin et al. A core conclusion of our reexamination is that pretreatment balance (common support, covariate balance, and parallel pretreatment trends) is necessary for credible shock-IV designs. We provide a good-practice checklist for shock-IV design with panel data, much of which also applies to DID designs. This paper was accepted by Shiva Rajgopal, accounting.