Do board characteristics drive firm performance? An international perspective

Abstract

The aim of our research is to analyze how board characteristics influence firm performance. In this paper, we specifically examine how board size, board independence, CEO duality, female directors and board compensation affect firm performance in a sample of international firms. The final panel data sample is composed of 10,314 firm-year observations belonging to 34 countries that have been grouped into six geographic zones: Africa, Asia, Europe, Latin America, North America and Oceania. Drawing on agency theory and dependence resource theory, we posit five hypotheses. The results show that some board characteristics, such as board size, board independence and having a female director, are positively associated with firm performance, whereas CEO duality, contrary to our expectations, also impacts positively on firm performance. Moreover, board compensation is not associated with firm performance. Tobin's Q was used to measure firm performance, although an accounting measure was also employed for robustness analyses and to provide more validity to our results.

The role of the board chair—A literature review and suggestions for future research

“…Similar to the findings of the financial outcomes, we noticed an agreement in the literature that dual CEO–chairs can usually obstruct firms from engaging in different mandatory and voluntary disclosures (cf. Pucheta‐Martínez & Gallego‐Álvarez, 2019a; Sánchez, Domínguez, & Álvarez, 2011) and in CSR activities (Chen, Zhang, & Jia, 2019; Gul & Leung, 2004; Husted & Sousa‐Filho, 2019; Lagasio & Cucari, 2019; Mallin & Michelon, 2011; Muttakin & Subramaniam, 2015; Yuan, Tian, Lu, & Yu, 2019; cf. Jo & Harjoto, 2011) and negatively impact company reputation through engagement in different misconducts, fraudulent activities, and manipulation of financial statements—ultimately resulting in destroying a firm's reputation (Baselga‐Pascual, Trujillo‐Ponce, Vähämaa, & Vähämaa, 2018; Dechow, Sloan, & Sweeney, 1996; Delgado‐García, De Quevedo‐Puente, & De La Fuente‐Sabaté, 2010; Efendi, Srivastava, & Swanson, 2007; Farber, 2005; Farrell, Yu, & Zhang, 2013; O'Connor, Priem, Coombs, & Gilley, 2006).…”

Management Financial Incentives and Firm Performance in a Sustainable Development Framework: Empirical Evidence from European Companies

“…Nowadays, board compensation is a widely used concept brought to the fore by scientists in the field of corporate governance, a concept that is relying mostly on the agency theory principles. The essential principle of the agency theory is "the development of a compensation package that makes it possible to attract, retain and motivate managers" [1] (p. 26).…”

“…Plenty of prior studies examined the effects of management financial incentives, as a significant component of the corporate governance mechanisms [1][2][3], on firms' performance [4][5][6][7], with inconclusive results, mainly based on the institutional discrepancies in applying the principles of corporate governance [8].…”

Does stakeholder engagement encourage environmental reporting? The mediating role of firm performance

“…CSR_COMMITTEE is calculated as a dummy variable that takes the value 1 if the company has a CSR committee and 0 otherwise (Dal Maso et al, 2017). Female directors are also controlled, labelled as FEM_DIRECT and calculated as the ratio of the number of female directors on a board and the total number of directors (Pucheta‐Martínez & Gallego‐Álvarez, 2019). Board independence, denoted by B_INDEP, is calculated as the ratio of the number of independent directors on a board and the total number of directors on that board, in line with Pucheta‐Martínez & Gallego‐Álvarez, 2019.…”

“…Female directors are also controlled, labelled as FEM_DIRECT and calculated as the ratio of the number of female directors on a board and the total number of directors (Pucheta‐Martínez & Gallego‐Álvarez, 2019). Board independence, denoted by B_INDEP, is calculated as the ratio of the number of independent directors on a board and the total number of directors on that board, in line with Pucheta‐Martínez & Gallego‐Álvarez, 2019. Furthermore, we also take into account the different regions (Asia, Europe, North America and Oceania) (Pucheta‐Martínez and Gallego‐Álvarez (2019), which is calculated as a dummy variable, taking the value 1 if the country of the sample belongs to the region examined and 0 otherwise.…”