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The Performance Effects of Corporate Board of Directors

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Abstract

This paper examines the relationship between the board-member independence, family control, and financial performance in Swedish listed firms. The degree of independence is defined with respect to the principal owners, the management of the firm, and the employees. The definition of independence, as applied by the Swedish Code of Corporate Governance, together with good accessibility of detailed data on corporate governance variables, makes it possible to apply a precise measure of board-member independency. The analysis indicates that directors, dependent on the management of the firm dominates the board of director. Board-member independency is found positively affect a firm's financial performance. The negative effect of board-member dependency originates from the firm-related directors whereas dependency on principal owners, families, and employees does not have any impact on the firm investment performance. The results are important in the contemporary political debate about the role of the board of directors as well as its composition. The analysis shows that the definition of independency is important when discussing the board of directors; directors, independent of the firm, not on principal owners, influence the firm investment performance positively.

Suggested Citation

  • Palmberg, Johanna, 2012. "The Performance Effects of Corporate Board of Directors," Ratio Working Papers 187, The Ratio Institute.
  • Handle: RePEc:hhs:ratioi:0187
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    1. Andres, Christian, 2008. "Large shareholders and firm performance--An empirical examination of founding-family ownership," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 431-445, September.
    2. Eklund, Johan & Palmberg, Johanna & Wiberg, Daniel, 2009. "Ownership Structure, Board Composition and Investment Performance," Working Paper Series in Economics and Institutions of Innovation 172, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
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    14. Palmberg, Johanna, 2012. "Family Control and Executive Compensation," Ratio Working Papers 186, The Ratio Institute.
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    Cited by:

    1. Kathrin Johansen & Saskia Laser & Doris Neuberger & Ettore Andreani, 2017. "Inside or outside control of banks? Evidence from the composition of supervisory boards," European Journal of Law and Economics, Springer, vol. 43(1), pages 31-58, February.

    More about this item

    Keywords

    Board Dependency; Family Control; Returns on Investment; Marginal q;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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