Board of director attributes: effects on financial performance in SMEs

Abstract

This paper analyses the relationship between board of director (BoD) attributes and financial performance in small and medium-sized enterprises (SMEs). Although SMEs are the backbone of world economies, most studies on this relationship focused on large companies and did not consider many typical or recommended processes and activities carried out by SME BoDs. We monitored a set of variables related to BoD attributes such as composition, characteristics, structure and processes for 184 Italian SMEs along with their financials over a 4-year period (2014-2017). We controlled for enterprise-specific characteristics such as annual sales growth, assets value, sales turnover, leverage, company size (employees), firm age, generational changes, director ownership and familiness. Using an ordinary least squares (OLS) regression model with time-period and industry-fixed effects on financial performance data, we found a significant correlation between certain BoD attributes and financial performance. In particular, in our model, BoD members' adequate competences and skills, presence of committees or individual delegates within the BoD, adequate and timely-furnished documentation before BoD meetings, monitoring of conflicts of interest of BoD members, BoD risk analysis and management, BoD member performance-based remuneration, and disclosure to stakeholders influenced the ROA ratio, used as a proxy for financial performance. Our findings support the importance of the BoD and its attributes in influencing the financial performance of SMEs. BoDs are proven unique resources for companies.

Does financial performance moderate the relationship between board attributes and corporate social responsibility in French firms?

“…As they are more sensitive about society, environment and ethics (Yang et al, 2019), female presence in the board enhances board effectiveness in stakeholder management (Ben-Amar et al, 2017) and encourages companies to act more socially responsible (Ardito et al, 2020;Gulzar et al, 2019). From stakeholder theory perspective, board size is considered as one of corporate governance tools used to protect and promote stakeholders' interests (Khan et al, 2021;Zaid et al, 2020;Zubeltzu-Jaka et al, 2020;Roffia et al, 2021;Al Fadli, 2020). Larger boards would have a variety of knowledge, skills and experiences, which improve the board's ability to supervise and control managerial opportunistic actions; thus, improve CSR performance (Endrikat et al, 2020;Alabdullah et al, 2019;Birindelli et al, 2018;Lagasio and Cucari, 2019).…”

“…Board size is recognized as an internal corporate governance mechanism that influences corporate social performance Roffia et al, 2021;Majeed et al, 2015;Cordova et al, 2021). Prior studies have largely investigated the relationship between board size and CSR engagement, but provided equivocal results (Guerrero-Villegas et al, 2018;Nwude and Nwude, 2021;Dwekat et al, 2020).…”

“…From agency theory perspective, larger boards often suffer from inefficient decisionmaking, which is mainly due to coordination, communication and monitoring problems (Khaireddine et al, 2020;Ciampi, 2015), and this can negatively impact the corporate social responsibility (Tibiletti et al, 2021). By contrast, from stakeholder theory perspective, some empirical investigations (Khan et al, 2021;Zaid et al, 2020;Zubeltzu-Jaka et al, 2020;Roffia et al, 2021;Al Fadli, 2020) suggested that board size, as one of corporate governance tools used to protect and promote shareholders' and other stakeholders' interests, is positively related to CSR. They claim that larger boards would have a variety of knowledge, skills and experiences, which improve the board's ability to supervise and control managerial opportunistic actions; thus, improve CSR performance (Endrikat et al, 2020;Alabdullah et al, 2019;Birindelli et al, 2018;Lagasio and Cucari, 2019).…”

“…It has been suggested that company need to strengthen its corporate governance structure (García Martín and Herrero, 2020; as one of the main pillars of CSR along with human capital, stakeholder capital and environment. In this regard, they viewed CSR as the responsibility of corporate board which has a critical role in monitoring and managing Corporate social responsibility firms' matters (Roffia et al, 2021). However, the efficiency of this role is largely influenced by board of directors' structure (Guerrero-Villegas et al, 2018;Alipour, 2019).…”

Does Board Usage of Knowledge and Skills Affect Internationalization Performance of Smes? A Case of Lithuania

“…Usage of knowledge and skills as mediator. The studies, investigating board's processes, suggest that there is a relationship between board characteristics, decision-making process and firm performance (Roffia et al, 2021). They show that board characteristics positively influence usage of knowledge and skills.…”