The Uncertain Relationship Between Board Composition and Firm Performance

Financial Disclosure and the Board: A Case for Non-Independent Directors

“…Thus the focus on independence may have had, and may still be having, adverse consequences, since it reduces the ability of Board members to acquire and certify firm-specific information, whether financial or non-financial, in circumstances that are likely to be significant in contemporary businesses. To some extent, this analysis sheds some light on a longstanding empirical puzzle, namely the observation that independence has a negligible or even negative effect on company performance (Klein 1998;Dalton, Daily, Ellstrand and Johnson 1998;Bhagat and Black 1999;Klein, Shapiro and Young 2005;Bhagat, Bolton and Romano 2008) 3 .…”

“…The 'conventional wisdom' (Bhagat and Black 1999), both among regulators and corporate governance scholars, is that director 'independence' is the essential attribute. As Cunningham (2007) notes, the now standard response to corporate crises is to look to independent directors to provide greater transparency, with independence being defined or proxied through a set of formal criteria (de jure or formal independence).…”

Corporate Governance Characteristics as a Stimulus to Tax Management

“…According to Silveira (2002), the question to be answered in these surveys was "[...] does a Board made up of a majority of external members (non-executive) increase company performance?" To answer it, researchers examined the correlation between accounting performance measures and the proportion of counselors external to the Board, and some results were conflicting (Rosenstein & Wyatt, 1990;Weisbach, 1988;Baysinger & Butler, 1985;Bhagat & Black, 2000;Hermalin & Weisbach, 1991;Byrd & Hickman, 1992;Agrawal & Knoeber,1996). Bhagat and Black (2000) found a significant relationship between the composition of the Board and corporate performance, noticing that the Boards of U.S. companies with a majority of independent members behave differently from the Boards without such a majority, and some of the differences seem to contribute to increase company value, while others seem to contribute to its reduction.…”

“…To answer it, researchers examined the correlation between accounting performance measures and the proportion of counselors external to the Board, and some results were conflicting (Rosenstein & Wyatt, 1990;Weisbach, 1988;Baysinger & Butler, 1985;Bhagat & Black, 2000;Hermalin & Weisbach, 1991;Byrd & Hickman, 1992;Agrawal & Knoeber,1996). Bhagat and Black (2000) found a significant relationship between the composition of the Board and corporate performance, noticing that the Boards of U.S. companies with a majority of independent members behave differently from the Boards without such a majority, and some of the differences seem to contribute to increase company value, while others seem to contribute to its reduction. However, contrary to what is advocated by most corporate governance codes, these authors state there is convincing evidence that the greater independence of the Board, represented by a majority of non--executive company counselors, is correlated to increased company profitability or faster growth.…”

“…According to Bhagat and Black (2000), there is no empirical support to claim that companies whose Boards have more independent members show a better performance. On the contrary, the authors state there is evidence that companies whose Board has a majority of independent members are less profitable, since they showed a worse performance when compared to other companies in the study.…”