We study how the composition of the board of directors and incentives from direct shareholdings affect firm performance in a sample of large, publicly traded firms. We use an instrumental variables approach that controls directly for endogeneity of both shareholdings and board composition. We find no evidence that cross-sectional patterns in board composition are correlated with cross-sectional patterns in performance. This result is consistent with a number of different explanations, all of which suggest that potential regulation of board composition would not be beneficial. Similar to the previous literature, we find a nonmonotonic relation between ownership and performance. Our results suggest that this relation is not a product of the endogeneity of shareholdings. Finally, we find that firm performance suffers if the CEO stays on too long (beyond 15 years).
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Article provided by Financial Management Association in its journal Financial Management.
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