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Do Board Quality and Promoters’ Holdings Affect Firm Performance? Evidence from Small and Medium-sized Enterprises

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  • Shweta Mehrotra
  • Birajit Mohanty
  • Tanushree Sharma

Abstract

Unlike large businesses, small and medium-sized enterprises (SMEs), being a key growth driver in accomplishing immeasurable socio-economic objectives, possess different governance structures and face unique governance issues. Through the agency perspective, this research endeavours to pore over how the quality of their board affects the performance of SMEs in India. A regression model was run applying heteroscedasticity robust standard errors (RSE) on a sample of 68 BSE-listed SMEs for the period from 2013–2014 to 2017–2018. The results of the regression of the performance of the SMEs against their board attributes showed the prominent contribution of high promoters’ shareholding, signifying that SMEs with a highly concentrated ownership structure demonstrate better performance. Firm leverage and firm performance were shown to have a positive and significant relationship with each other, suggesting that levered firms display substantially better performance. On the other hand, it was found that increasing the number of independent directors and female directors does not necessarily result in improved firm performance. This finding suggests that tokenism, that is, appointing independent directors and female directors merely to comply with norms but not in true spirit, can reduce a firm’s performance. This research effort contributes to the literature constructively through explaining the linkage between board quality and the performance of SMEs, particularly in the Indian context, and has implications for the escalation of governance standards through bringing more clarity to and streamline policy and disclosure.

Suggested Citation

  • Shweta Mehrotra & Birajit Mohanty & Tanushree Sharma, 2023. "Do Board Quality and Promoters’ Holdings Affect Firm Performance? Evidence from Small and Medium-sized Enterprises," FIIB Business Review, , vol. 12(1), pages 100-108, March.
    • Handle: RePEc:sae:fbbsrw:v:12:y:2023:i:1:p:100-108
    DOI: 10.1177/2319714520980286
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