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Board independence and operating performance: Analysis on (French) company and individual data

  • Sandra Cavaco

    (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche - Sorbonne Universités)

  • Edouard Challe

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, Banque de France)

  • Patricia Crifo

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS, UP10 - Université Paris 10, Paris Ouest Nanterre La Défense)

  • Antoine Rebérioux

    ()

    (EconomiX - CNRS - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense, CREDDI/LEAD Université Antilles Guyane - UAG - Université des Antilles et de la Guyane)

  • Gwenael Roudaut

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS, AgroParisTech)

While often criticized, independence remains the ultimate criterion for evaluating board composition, whether for regulators or shareholder activists. In this study, we examine the relationship between board independence and firm operating performance in a panel of French listed companies, paying particular attention to heterogeneity and endogeneity concerns. We take advantage of an original database, with a time-series dimension that can be used to mitigate heterogeneity and dynamic endogeneity issues through GMM estimators. In addition, this database can be disaggregated at the individual (director) level. This design enables us to introduce firm fixed effects and individual fixed effects in (firm) performance equations, thereby controlling for heterogeneity at the firm and individual levels. To our knowledge, this is the first paper so far to provide a systematic account on this issue for France. Our main result is to document a significant negative relationship between accounting performance and the independence status (irrespective of the person). This result supports the argument of an information gap suffered by independent board members, as developed by Adams and Ferreira (2007).

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Date of creation: 27 Jan 2014
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Handle: RePEc:hal:wpaper:hal-00919408
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  1. Mathias Siems & Priya Lele, 2006. "Shareholder Protection: A Leximetric Approach," ESRC Centre for Business Research - Working Papers wp324, ESRC Centre for Business Research.
  2. 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.
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  5. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
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  8. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
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  19. Bhagat, Sanjai & Bolton, Brian, 2008. "Corporate governance and firm performance," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 257-273, June.
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  22. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2012. "Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 527-554.
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