The board of directors and firm performance: empirical evidence from listed companies

Abstract

Purpose This study aims to reconcile some of the conflicting results in prior studies of the board structure–firm performance relationship and to evaluate the effectiveness and applicability of agency theory in the specific context of Italian corporate governance practice. Design/methodology/approach This research applies a dynamic generalised method of moments on a sample of Italian listed companies over the period 2003-2015. Proxies for corporate governance mechanisms are the board size, the level of board independence, ownership structure, shareholder agreements and CEO–chairman leadership. Findings While directors elected by minority shareholders are not able to impact performance, independent directors do have a non-linear effect on performance. Board size has a positive effect on firm performance for lower levels of board size. Ownership structure per se and shareholder agreements do not affect firm performance. Research limitations/implications This paper contributes to the literature on agency theory by reconciling some of the conflicting results inherent in the board structure–performance relationship. Firm performance is not necessarily improved by having a high number of independent directors on the board. Ownership structure and composition do not affect firm performance; therefore, greater monitoring provided by concentrated ownership does not necessarily lead to stronger firm performance. Practical implications This paper suggests that Italian corporate governance law should improve the rules and effectiveness of minority directors by analysing whether they are able to impede the main shareholders to expropriate private benefits on the expenses of the minority. The legislator should not impose any restrictive regulations with regard to CEO duality, as the influence of CEO duality on performance may vary with respect to the unique characteristics of each company. Originality/value The results enrich the understanding of the applicability of agency theory in listed companies, especially in Italy. Additionally, this paper provides a comprehensive synthesis of research evidence of agency theory studies.

Does Board Composition Matter? The Relationship Between Board Characteristics and Financial Performance: Evidence From Chinese Listed Agricultural Companies

“…CEO duality (when CEO at the same time is the chairman of the board) attracts a lot of attention and rightly so because this situation fits well into the debate on the impact of the separation of ownership and control (Merendino & Melville, 2019). And indeed there are differences between sole and dual board systems (R. B.…”

“…The board size is considered as one of the key factors that influence firm performance (Kumar & Singh, 2013;Merendino & Melville, 2019;Singla & Singh, 2019). Among the advantages of a large board of directors are enhanced opportunities to share information as well as the expanded experience of directors, greater variety of professional backgrounds, bigger panoply of expertise possessed by them and as a result much bigger skills set It is considered generally accepted that the role of non-executive directors and independent directors is to monitor the decisions and activities of the company's management and thus keep the executive branch accountable (Clifford & Evans, 1997;Graham et al, 2020).…”

“…A high level and proportion of independent directors on boards should lead to a more effective monitoring role and curb or limit managerial opportunism (Ahmad, Rashid, & Gow, 2017;Chung & John, 2017;Idris, Abu Siam, & Nassar, 2018;K. Li, Lu, Mittoo, & Zhang, 2015;Merendino & Melville, 2019). This, in turn, should lead to increased benefits for shareholders, increase the operational and financial performance of the company assessed based on various proxy indicators and even enhance innovation process (René e B Adams, Hermalin, & Weisbach, 2010;Balsmeier, Fleming, & Manso, 2017;Duchin, Matsusaka, & Ozbas, 2010;El-Faitouri, 2014;Masulis & Mobbs, 2014a;Masulis & Zhang, 2019;Merendino & Melville, 2019; Uribe-Bohorquez, Martí nez-Ferrero, & Garcí a-Sá nchez, 2018).…”

“…Adams & Ferreira, 2007). Supporters of CEO duality argue that CEO and chairman of the board are often in conflict, leading to mixed signals for the company's employees (Allam, 2018;Merendino & Melville, 2019;Mubeen, Han, Abbas, & Hussain, 2020) and downgrade the company"s performance (H. Li & Li, 2009). Further CEO duality often results in cost savings through partially scrapping information transferring and processing costs (Yang & Zhao, 2014) and might as well smooth the way for a more timely and effective decision-making process (Peng, Sun, Pinkham, & Chen, 2009).…”

Composición del consejo de administración y desempeño financiero en mercados emergentes de América Latina: evidencia para Brasil, Chile y México

“…La evidencia encontrada sobre el efecto de tales atributos en el desempeño de las empresas no es concluyente; además, se observa una variabilidad en las metodologías aplicadas y medidas de desempeño utilizadas (Bozec y Dia, 2015;Merendino y Melville, 2019). A su vez, los estudios se centran en economías desarrolladas y de tradición anglosajona; son escasos los que se realizan en economías emergentes, en las que la legislación que protege a los inversionistas es diversa y difiere de manera sustantiva entre países (Briano-Turrent y Rodríguez-Ariza, 2016; Klapper y Love, 2004; Pavić-Kramarić, Aleksic y Pejic-Bach, 2018).…”