Comparative Analysis Between Two-Tier Boards and Unitary Boards in the Case of the Companies Listed on the Bucharest Stock Exchange

Abstract

This paper examines the role of two-tier boards versus one-tier board systems for the case of firms listed on the Bucharest Stock Exchange (BSE). The literature shows that one-tier or unitary and twotier or dualistic board systems have different advantages and disadvantages, like lower levels of information problems in unitary systems and higher levels of independence in the case of two-tier systems. The purpose of this paper is to collect information on various board and firm characteristics from around 60 companies with the unitary system and 6 companies with the dual system listed on BSE and analyses the differences that impact their financial performance. The results indicate that companies with a two-tier system are larger and have larger board sizes. In addition, they have better performance on average, measured by the return on equity indicator. However, the regression results indicate that these positive performance effects of the two-tier board become statistically insignificant when the various board and company characteristics are included as control variables. The low sample size of the two-tier board companies is a possible factor creating statistically insignificant results. The additional regressions results show that when the share of independent board members increases by 10%, the ROE increases by 1.26%.