Power Dimensions in the Board and outside Director Independence: Evidence from large Industrial UK Firms
This paper examines the independence of outside directors in large UK corporations. It also establishes firms (1750 directors) from 28 sectors. The findings have strong implications for the operationalisation and measurement of board composition and structure in empirical work. The study (by incorporating CEO influence on director’s appointment process) offers wide ranging opportunities for examining if board composition and outside director independence matters. Hypothesis that tests if the CEO influence of the nomination process affect board independence could be examined. Our reliable and valid objective estimates of power in the board will facilitate the consideration of power dynamics (presently largely ignored) in empirical works investigating the performance effect of the board. Finally, our power dimension factors discovered serves as useful solution to the problem of multicollinearity in regression methods employing several governance mechanisms as explanatory variables.
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