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

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  • Roman Horváth
  • Persida Spirollari

Abstract

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 fi rm 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.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2012 (2012)
Issue (Month): 4 ()
Pages: 470-486

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Handle: RePEc:prg:jnlpep:v:2012:y:2012:i:4:id:435:p:470-486

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Related research

Keywords: risk; firm´s performance; financial crisis; corporate governance; board of directors; agency problems;

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References

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  1. Rosenstein, Stuart & Wyatt, Jeffrey G., 1990. "Outside directors, board independence, and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 26(2), pages 175-191, August.
  2. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
  3. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
  4. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
  5. Smith, Adam, 2008. "An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition," OUP Catalogue, Oxford University Press, number 9780199535927 edited by Sutherland, Kathryn.
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