*2.7. Board Independence and Firm Performance*

Previous studies suggest that independent directors can improve a firm's decision making by providing effective monitoring on the board (Jensen and Meckling 1976). Huson et al. (2001) revealed a positive relationship between independent directors and firm performance. Yasuhiro et al. (2016) found that boards dominated by insiders have a significant effect on low profitability and market valuation of Japanese firms. They noted that independent directors could guarantee and promote risk-taking action, thereby creating a significant positive impact on firm performance (both ROA and Tobin's Q). Arikawa et al. (2017) unearthed that ROA and Tobin's Q increase by 0.6% and 0.26%, respectively when outside directors increase by 29%. In addition, in examining 144 companies that appointed their first outside directors, Saito (2009) reported that the stock prices of these companies responded significantly positively, rising approximately 1.2% on average, and 1% at the median.

We note that family firms can receive valuable advice if they encourage more independent directors on the board. In Japan, many independent directors are found to be life-long employees who were hired to serve on the company's board upon retirement. With such a long-term commitment, these independent directors are likely to direct the firm towards sustainable growth, not just for a short-term profit (Bauer et al. 2008). Therefore, we take the following hypothesis.
