The typical corporate board of directors has nine members, five of whom are “outsiders”, i.e., “who are not current or former employees, and who do not have dealings with the firm.” When such an outsider suddenly and unexpectedly dies, the stock price falls by about 5% on average, and falls even more if that outsider was not appointed by the current CEO. This 5% number is a (1% significant) estimate after controlling for director quality, by studying 30 directors who were outsiders on some boards, and insiders on other boards. This strongly suggests there are large gains to encouraging more independent firm directors.
Oh, never mind, it's in the summary. I can't read today.
I can't read the actual paper, but an obvious question is what the effect of the death of a non-independent director is on a company's stock price. Do they look into that?
This makes sense. It's difficult or perhaps tedious for 'mum and dad' shareholders to conduct full due diligence prior to investment or stay informed of the company's day-to-day running. Many aren't financial literate enough to understand information even when it is provided. To this end, the independence of directors is generally an indication of transparency and procedural fairness on a board.
Over time, shareholders gain a better understanding of whether a director's intentions align with their own interests. Perhaps a swing vote, or role as Chair etc. provide further or particularly good ways to test the director and are therefore valuable.
Nitpick: typical corporate board of a public company