Do corporate boards affect firm performance? New evidence from the financial crisis
AbstractThis study uses the current financial crisis as a quasi-experiment to examine whether and to what extent corporate boards affect the performance of firms. Using cumulative stock returns over the crisis to measure of firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we re-define independent directors as outside directors who are less connected with current CEOs, a measure we call true independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. Third, board meeting frequencies, director attendance behaviors, and director age also affect firm performance during the crisis. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 11/2012.
Length: 55 pages
Date of creation: 12 Apr 2012
Date of revision:
financial crisis; boards of directors; firm performance; true independence;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-02 (All new papers)
- NEP-BEC-2012-05-02 (Business Economics)
- NEP-EFF-2012-05-02 (Efficiency & Productivity)
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