Prague Economic Papers 2012, 21(4):470-486 | DOI: 10.18267/j.pep.435

Do the Board of Directors' Characteristics Influence Firm's Performance? The U.S. Evidence

Roman Horváth1, Persida Spirollari2
1 Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Opletalova 26, Praha 1, 110 00 (roman.horvath@gmail.com).
2 Alpha Bank Albania, Tirana, Albania. R. Horvath acknowledges the support from the Czech Science Foundation Grant No. 402/11/1487.

We examine the relationship of selected Board of Directors' characteristics and firm's financial performance. Using a sample of large U.S firms in 2005-2009, we find that the degree of insider ownership influences positively firm performance, because it reduces agency problems. The age of the Board of Directors matters, to a certain degree, as well. Younger members are probably willing to bear more risk and to undertake major structural changes to improve firm's future prospects. On the other hand, we find that independent directors reduce firm performance and this negative effect was even more important during the recent financial crisis. We suppose that independent directors prefer overly conservative business strategies in order to protect shareholders, but this goes at the cost of lower firm's performance. All in all, our results suggest that corporate governance is important for firm's financial performance.

Keywords: corporate governance, financial crisis, risk, firm´s performance, board of directors, agency problems
JEL classification: G32, G34

Published: January 1, 2012  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Horváth, R., & Spirollari, P. (2012). Do the Board of Directors' Characteristics Influence Firm's Performance? The U.S. Evidence. Prague Economic Papers, 21(4), 470-486. doi: 10.18267/j.pep.435
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Abidin, Z. Z., Kamal, N. M., Jusoff, K. (2009), "Board Structure and Corporate Performance in Malaysia." International Journal of Economics and Finance, Vol. 1, No. 1, pp. 150-164. Go to original source...
    2. Adams, R., Ferreira, D. (2009), "Women in the Boardroom and their Impact on Governance and Performance." Journal of Financial Economics, Vol. 94, No. 2, pp. 291-309. Go to original source...
    3. Adams, R., Mehran, H. (2008), "Corporate Performance, Board Structure, and their Determinants in the Banking Industry." Federal Reserve Bank of New York Staff Reports No. 330. Go to original source...
    4. Bhagat, S., Black, B. (2001), "The Non-Correlation between Board Independence and Long Term Firm Performance." Journal of Corporation Law, Vol. 27, No. 2, pp. 231-274.
    5. Campbell, K., Minguez-Vera, A. (2007), "Gender Diversity in the Boardroom and Firm Financial Performance." Journal of Business Ethics, Vol.83, No. 3, pp. 435-451. Go to original source...
    6. Dobbin, F., Jung, J. (2011), "Corporate Board Gender Diversity and Stock Performance: The Competence Gap or Institutional Investor Bias?" North Carolina Law Review, Vol. 89, No. 3, pp. 809-838.
    7. Hayes, R., Mehran, H., Schaefer, S. (2005), "Board Committee Structures, Ownership, and Firm Performance." Federal Reserve Bank of New York, unpublished.
    8. Jensen, M. (1993), "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems." The Journal of Finance, Vol. 48, No. 3, pp. 831-880. Go to original source...
    9. Klein, A. (1998), "Firm Performance and Board Committee Structure." Journal of Law and Economics, Vol. 41, No. 1, pp. 275-303. Go to original source...
    10. Kumar, P., Sivaramakrishnan, K. (2008), "Who Monitors the Monitor? The Effect of Board Independence on Executive Compensation and Firm Value." Review of Financial Studies, Vol. 21, No. 3, pp. 1371-1401. Go to original source...
    11. Mehran, H. (1995), "Executive Compensation Structure, Ownership, and Firm Performance." Journal of Financial Economics, Vol. 38, No. 2, pp. 163-184. Go to original source...
    12. Peng, M. (2004), "Outside Directors and Firm Performance during Institutional Transitions." Strategic Management Journal, Vol. 25, No. 5, pp. 453-471. Go to original source...
    13. Rosenstein, S., Wyatt, J. G. (1990), "Outside Directors, Board Independence and Shareholder Wealth." Journal of Financial Economics, Vol. 26, No. 2, pp.175-191. Go to original source...
    14. Smith, A. (2008), An Inquiry into the Nature and Causes of the Wealth of Nations. New Delhi: Atlantic Publishers and Distributors.
    15. Vafeas, N. (1999), "Board Meeting Frequency and Firm Performance." Journal of Financial Economics, Vol. 53, No. 1, pp. 113-142. Go to original source...
    16. Wiersema, M. F., Bantel, K. A. (1992), "Top Management Team Demography and Corporate Strategic Change." The Academy of Management Journal, Vol. 35, No. 1, pp. 91-121. Go to original source...
    17. Yermack, D. (1996), "Higher Market Valuation of Companies with a Small Board of Directors." Journal of Financial Economics, Vol. 40, No. 2, pp. 185-211. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content