Effect of board characteristics on firm value: evidence from India

Abstract

Purpose The purpose of this paper is to explore the relationship of board characteristics and firm performance for Indian companies. Design/methodology/approach Corporate governance structures of 391 Indian companies out of CNX 500 companies listed on National Stock Exchange have been studied for their impact on performance of companies. Structural equation modeling methodology has been employed on data for five financial years from 2010 to 2014 for selected companies. Market-based measure (Tobin’s Q) and accounting-based measure (return on asset) have been employed for measuring firm performance. Findings Empirical findings indicate that there is significant positive association between board size and firm performance. Board independence is found significantly related to firm performance. Number of board meetings is found to be sending positive signal to the market creating firm value. Separation of CEO and chairman of the board is found to be value creating and overburdened directors affect firm performance adversely. Findings also suggest that the governance-performance relationship is also dependent upon the type of performance measures used in the study. Research limitations/implications Limitations of this study are in terms of data methodology and possible omission of some variables. It is understood that the qualitative dynamics happening inside board meetings impact corporate performance. The strategic decisions-making process adopted by the boards to fight competition or to increase market share is not available in public domain easily. The decision-making processes and monitoring for implementation of these decisions could impact corporate governance-performance relationship. These parameters and their impact on corporate performance are not covered under the scope of the present study. However, the same could have thrown more light on governance-performance relationship. Originality/value The paper adds to the emerging body of literature on corporate governance-performance relationship in the Indian context using a reasonably wider and newer data set.

Governance and ownership in Malaysia: their impacts on corporate performance

“…Although much of prior studies showed frequent board meetings led to improved company performance (Al Farooque et al, 2020;Brick and Chidambaran, 2010;Mishra and Kapil, 2018;Puni and Anlesinya, 2020), the finding in the present study suggests otherwise. Board meetings are negatively associated, implying that frequent board meetings are detrimental to corporate performance.…”

“…Empirical evidence appears to suggest that combining the roles results in worse performance (Al Farooque et al, 2020;Chen et al, 2005;Haniffa and Hudaib, 2006;Kao et al, 2019;Shao, 2019). Mishra and Kapil (2018) found that separating the roles resulted in better corporate performance in Sri Lanka. By contrast, Jackling and Johl (2009), Ofoeda (2017) and Puni and Anlesinya (2020) observed no significant relationship between combined role and corporate performance.…”

Does corporate governance influence firm performance? Evidence from India

“…On the contrary proponents of the resource dependency perspective advocates that directors with a greater exposure to external settings assist firms in getting better access to various key resources, which in turn improves FP (Mizruchi & Stearns, 1988). Accordingly evidence, mostly from developing markets, reports the positive influence of board size on FP (Jackling & Johl, 2009;Sheikh, Wang, & Khan, 2013;Mishra & Kapil, 2018). They have highlighted some unique characteristics of the developing market such as a large proportion of family owned firms coupled with the scarcity of qualified outside directors whereby firms tend to restrict executive positions to family members, which limits the qualified pool of human resources.…”

“…Conversely, the stewardship perspective supports role duality as it offers greater autonomy to managers who act as stewards' in maximizing shareholders wealth (Donaldson & Davis, 1991). Given the diverse theoretical view empirical findings on the issue are mixed with studies reporting positive (Sheikh et al, 2013;Azeez, 2015;Mishra & Kapil, 2018), negative (Jermias, 2007;Kao et al, 2019) and no association (Chang & Leng, 2004;Tachiwou, 2016) between role duality and FP. Nevertheless CG codes around the globe as well as in India have emphasized the separation of the role of CEO and chairman in order to limit the power of board leaders (Cadbury, 1992;SEBI, 2015).…”

The effect of board governance and debt policy on value of non-financial firms

“…On the other hand, agency theory, cited by Mishra and Kapil (2018), states that the large number of outside members of the board will make firm value go down, because they cannot align with top managers. Instead, the large number of inside supervisory board members is desired to align interests between them, so that the high firm value can be attained.…”