Hypothesis development
Our two hypotheses are concerned with board independence and its effect on firm value, respectively. The Code clearly stipulates the requirement to have at least two outside directors on the board. In the Japanese context where most companies did not have any or had only one outside director prior to the introduction of the Code and were exposed to considerable market pressures, this can only mean that we should expect the number/ratio of outside directors to increase following its legislation.
Conclusion
Recent corporate governance scandals such as Petrobras in Brazil, Deutsche Bank and Volkswagen in Germany, and Toshiba in Japan continue to drive the debate on the best form of governance to mitigate corporate misconduct and increase firm value. Among the large family of corporate governance approaches, voluntary codes in the form of comply-or-explain have found increasing acceptance across the world. This paper provides empirical evidence on the causal effects of voluntary regulation on market..