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Do corporate boards affect firm performance? New evidence from the financial crisis

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Author Info

  • Francis, Bill

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute)

  • Hasan , Iftekhar

    ()
    (Schools of Business, Fordham University, Bank of Finland)

  • Wu , Qiang

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute)

Abstract

This 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 Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 11/2012.

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Length: 55 pages
Date of creation: 12 Apr 2012
Date of revision:
Handle: RePEc:hhs:bofrdp:2012_011

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Related research

Keywords: financial crisis; boards of directors; firm performance; true independence;

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