This study investigates the effect of institutional factors in the over-adoption of the outside directions in Korean manufacturing companies during the period 1998 and 2000. After the `97 Asian economic crisis, Korean government enacted laws that made...
This study investigates the effect of institutional factors in the over-adoption of the outside directions in Korean manufacturing companies during the period 1998 and 2000. After the `97 Asian economic crisis, Korean government enacted laws that made all publicly traded companies appoint outside directors. This study explored the question of why certain companies appointed outside directors more than the laws required. We hypothesized that firms with social legitimacy crisis, proximity to world society, and high visibility were more likely to appoint a larger number of outside directors. Poisson regression with 323 listed manufacturing firms showed that proximity to world society and visibility rendered firms more vuluerable to the normative pressure to appoint a larger number of outside directors. Social legitimacy crisis did not strongly prompt the appointment of outside directors over the legal requirements. Implications to institutional theory, limitations, and future research directions were discussed.