Corporate Boards and Company Performance: review of research in light of recent reforms

Abstract

Recent US corporate governance reforms introduced extensive regulations and guidelines for public corporations, particularly corporate boards. This article evaluates the extent to which empirical research on corporate boards and firm performance supports these reforms. Building on the meta-analysis conducted by Zahra and Pearce (1989 ), we review 105 studies published between 1989 and 2005. We find most of the practices mandated by the Sarbanes-Oxley Act of 2002, and the regulations issued by the New York Stock Exchange (NYSE) and the NASDAQ, had not been subject to prior study. Where board characteristics have been studied, we find limited guidance for policymakers on identifying governance practices that result in more effective firm performance. In an effort to increase the relevance of future research on boards and firm performance, we provide a framework on corporate boards. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Board composition, board size and financial performance of Johannesburg stock exchange companies

“…With reference to board composition (in terms of the ratio of non-executive to executive directors), some studies (Weisbach, 1988;Pearce & Zahra, 1992;Daily & Dalton, 1993;Rosenstein & Wyatt, 1994;MacAvoy & Millstein, 1999;Krivogorsky, 2006) suggest a positive relationship between board composition and firm performance, while others have found no such relationship (Bhagat & Black, 1999;Daily & Johnson, 1997;Dulewicz & Herbert, 2004), or argue that empirical findings suggest that reducing insider directors can harm firm performance by depriving boards of valuable firm and industry-specific knowledge (Finegold, Benson & Hecht, 2007).…”

The soft underbelly of corporate governance (Part 2): The software of board dynamics

“…Ultimately, the effectiveness of a board contributes, in no uncertain terms, to the competitive edge and performance of the organisation it is overseeing (Charan, 2005;Chew and Gillian, 2005;Finegold, Benson and Hecht, 2007;Marcus, 2008;Payne, Benson and Finegold, 2009;Petrovic, 2008;Zona and Zattoni, 2007). By deliberately addressing soft governance, board effectiveness can be significantly enhanced.…”

Improving corporate performance by enhancing team dynamics at the board level

“…Hundreds of articles have been written to try to capture the 'mystery' of the boardroom, directors and their impact on the successful management of the firm (Zahra and Pearce, 1989;Gabrielsson and Huse, 2004;Finegold et al, 2007;Hambrick et al, 2008;Huse et al, 2011). When considering the perspectives employed in these inquiries, it is useful to review the different streams of literature on this topic -economic, behavioral, individual-based and team-based frameworksfrom which to observe and consider board characteristics and outcomes.…”

“…In addition, there is precedent for considering the size of the board when predicting firm performance (Yermack, 1996;Dalton et al, 1998;Eisenberg et al, 1998). Recent studies have explored how the proportion of executive and independent directors and board composition impact firm performance (Wagner et al, 1998;Finegold et al, 2007).…”