A new perspective on board composition and firm performance in an emerging market

Rashid Ameer · Fairuz Ramli · Husein Zakaria

117 citations0/0 files storedCorporate Governance

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Corporate Finance and Governance Gender Diversity and Inequality Corporate Governance and Financial Management

Abstract

Purpose This paper seeks to examine the relationship between board composition and firm performance using a board‐level aggregation variable. Design/methodology/approach This study uses linear regression to analyze the relationship between board role typology and firm performance using a panel data set of 277 non‐financial listed Malaysian firms over the period 2002‐2007. Findings The empirical results show that firm‐boards with a high representation of outside and foreign directors are associated with better performance compared to those firm‐boards that have a majority of insider executive and affiliated non‐executive directors. Research limitations/implications The findings seem to imply that in widely owned firms a higher proportion of outsiders on the board reduces under‐investment and agency problems, which has significant economic implications. Originality/value This is the first study to use a board‐level aggregation variable to demonstrate the impact of boards' resourcefulness on firm performance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1983Human Capital 1996Higher market valuation of companies with a small board of directors 2005How do family ownership, control and management affect firm value?1972Size and Composition of Corporate Boards of Directors: The Organization and its Environment 2000The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change 2003Why are foreign firms listed in the U.S. worth more?

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