Board of Directors and Tobin’s Q: Evidence from U.K.Firms

Abstract

This study investigates whether board of director characteristics have an impact on corporate performance. Recent studies highlight that findings that such characteristics do have an impact may be affected by endogeneity issues in the data, which could lead to biased results. This study responds to this concern by using a generalised method of moments regression model) developed by WintoDYki et al. (2011). Data for the analysis are extracted from BoardEx, FAME, and Datastream databases for the period 1999 – 2009. The final sample includes a total of 634 UK firms listed in the London Stock Exchange. The results suggest that board structure is partly determined by past corporate performance. Considering this, the results document that there is no relation between characteristics of the board of directors and corporate performance measured by Tobin’s Q. This is inconsistent with much prier empirical studies and policy recommendations on corporate governance that suggests that corporate governance mechanisms develop corporate performance. In addition, this result indicates that the findings of the earlier corporate governance studies that do not take into account the dynamic nature of corporate governance may be affected by bias.

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