Do women directors improve firm performance in China?

This paper examines the effect of board gender diversity on firm performance in China's listed firms from 1999 to 2011. We document a positive and significant relation between board gender diversity and firm performance. Female executive directors have a stronger positive effect on firm performance than female independent directors, indicating that the executive effect outweighs the monitoring effect. Moreover, boards with three or more female directors have a stronger impact on firm performance than boards with two or fewer female directors, consistent with the critical mass theory. Finally, we find that the impact of female directors on firm performance is significant in legal person-controlled firms but insignificant in state-controlled firms. This paper sheds new light on China's boardroom dynamics. As governments increasingly contemplate board gender diversity policies, our study offers useful empirical guidance to Chinese regulators on the issue.     

Boards: Does one size fit all?

This paper reexamines the relation between firm value and board structure. We find that complex firms, which have greater advising requirements than simple firms, have larger boards with more outside directors. The relation between Tobin's Q and board size is U-shaped, which, at face value, suggests that either very small or very large boards are optimal. This relation, however, arises from differences between complex and simple firms. Tobin's Q increases (decreases) in board size for complex (simple) firms, and this relation is driven by the number of outside directors. We find some evidence that R&D-intensive firms, for which the firm-specific knowledge of insiders is relatively important, have a higher fraction of insiders on the board and that, for these firms, Q increases with the fraction of insiders on the board. Our findings challenge the notion that restrictions on board size and management representation on the board necessarily enhance firm value.     

The causal effect of board size in the performance of small and medium-sized firms

Empirical studies of large publicly traded firms have shown a robust negative relationship between board size and firm performance. The evidence on small and medium-sized firms is less clear; we show that existing work has been incomplete in analyzing the causal relationship due to weak identification strategies. Using a rich data set of almost 7000 closely held corporations we provide a causal analysis of board size effects on firm performance: We use a novel instrument given by the number of children of the chief executive officer (CEO) of the firms. First, we find a strong positive correlation between family size and board size and show this correlation to be driven by firms where the CEO’s relatives serve on the board. Second, we find empirical evidence of a small adverse board size effect driven by the minority of small and medium-sized firms that are characterized by having comparatively large boards of six or more members.     

What are the consequences of board destaggering?

In this paper, we examine the consequences of the decision to destagger the election of directors using a sample of firms that switched from a staggered to a destaggered board structure from 2002 through 2010. We find that the likelihood of destaggering increases in shareholder activism, firm size, and poor prior accounting performance. Furthermore, we find that firms that destagger tend to have larger boards and a lower entrenchment index prior to destaggering. We then use our determinants model to identify a sample of control firms that maintained a staggered board structure. Employing a difference-in-differences research design, we find that, relative to our control firms, firms that destaggered experience declines in Tobin’s q and accounting performance, measured by ROA. In addition, the negative effect on Tobin’s q is most pronounced in firms with greater advisory needs, consistent with the notion that destaggering results in worse performance when the advisory role of boards is more important. Contrary to claims made by proponents of destaggered boards, we find no evidence that CEOs are less entrenched after destaggering. We also provide some evidence suggesting that investment in R&D falls in the post-destaggering period, consistent with the view that after destaggering board members have shortened incentive horizons. Taken together, our evidence is contrary to the earlier studies that claim that destaggered boards are generally optimal and value-increasing.     

Women in the boardroom and their impact on governance and performance

We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.     

The impact of cultural diversity in corporate boards on firm performance

We examine the impact of cultural diversity in boards of directors on firm performance. We construct a measure of national cultural diversity by calculating the average of cultural distances between board members using Hofstede's culture framework. Our findings indicate that national cultural diversity in boards negatively affects firm performance measured by Tobin's Q and ROA. These results hold after controlling for potential endogeneity using firm fixed effects and instrumental variables regressions. Further, the results are robust to controlling for a wide range of board and firm characteristics, including various measures of “foreignness” of the firm, alternative culture frameworks, and other measures of culture. The negative impact of cultural diversity on performance is mitigated by the complexity of the firm and the size of foreign sales and operations. In addition, we find that the negative effects of cultural diversity are concentrated among the independent directors. Finally, we find that not all aspects of cultural differences are equally important and that it is mainly the diversity in individualism and masculinity that affects the effectiveness of boards of directors.     

Board composition,grey directors and corporate failure in the UK

This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs' personal or economic ties with the firm and its management on firm performance. We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have over emphasised the monitoring function of independent directors and underestimated the benefits of NEDs' affiliations with the firm and its management.     

Do corporate governance mechanisms influence CEO compensation? An empirical investigation of UK companies

The aim of this paper is to empirically examine the influence of corporate governance mechanisms, that is, ownership and board structure of companies, on the level of CEO compensation for a sample of 414 large UK companies for the fiscal year 2003/2004. The results show that measures of board and ownership structures explain a significant amount of cross-sectional variation in the total CEO compensation, which is the sum of cash and equity-based compensation, after controlling other firm characteristics. We find that firms with larger board size and a higher proportion of non-executive directors on their boards pay their CEOs higher compensation, suggesting that non-executive directors are not more efficient in monitoring than executive directors. We also find that institutional ownership and block-holder ownership have a significant and negative impact on CEO compensation. Our results are consistent with the existence of active monitoring by block-holders and institutional shareholders. Finally, the results show that CEO compensation is lower when the directors’ ownership is higher.     

Is Busy Really Busy? Board Governance Revisited

We investigate the relationship between firm governance and the board's position in the social network of directors. Using a sample of 133 German firms over the four‐year period from 2003 to 2006, we find that firms with intensely connected supervisory boards are (1) associated with lower firm performance, and (2) pay their executives significantly more. We interpret these results as evidence of poor monitoring in firms with directors who are more embedded in the social network. In both cases, simple measures for busy directors that were used by other studies in the past fail to show any significant pattern. The findings suggest that the quality and structural position of additional board seats may play a bigger role than simply the number of board appointments.     

Controlling shareholders,board structure,and firm performance: Evidence from India

We examine the prevalence and performance impact of controlling shareholders and study corporate board structures and ownership structures in 1796 Indian firms. Families (founders) are present on the boards in 63.2 (65.5) percent of the sample firms. On average, founders own over 50% of outstanding shares. In contrast to the findings of Anderson and Reeb (2003) in the U.S. context, we find that controlling shareholder board membership in Indian firms has a statistically significant negative association with Tobin's Q. Higher proportion of independent directors, higher institutional ownership or larger firm size does not appear to mitigate this relationship. Overall, board membership of controlling shareholders appears to be costly for minority shareholders.     

Who's Monitoring the Monitor? Do Outside Directors Protect Shareholders' Interests?

The corporate governance literature is rich with empirical tests of the relation between board composition and firm performance. We consider the effect of board composition on a different measure of performance, the probability a firm will be sued by shareholders. We find firms that are defendants in securities litigation have higher proportions of insiders and of gray directors and have smaller boards than a matched group of firms that are not sued, even when controlling for firm value and industry. The results suggest that boards with higher proportions of outside directors do a better job of monitoring management.     

The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms

This study examines the effects of board characteristics and sustainable compensation policy on carbon reduction initiatives and greenhouse gas (GHG) emissions of a firm. We use firm fixed effect model to analyse data from 256 non-financial UK firms covering a period of 13 years (2002–2014). Our estimation results suggest that board independence and board gender diversity have positive associations with carbon reduction initiatives. In addition, environment-social-governance based compensation policy is found to be positively associated with carbon reduction initiatives. However, we do not find any relationship between corporate governance variables and GHG emissions of a firm. Overall, our evidence suggests that corporate boards and executive management tend to focus on a firm's process-oriented carbon performance, without improving actual carbon performance in the form of reduced GHG emissions. The findings have important implications for practitioners and policymakers with respect to the effectiveness of internal corporate governance mechanisms in addressing climate change risks, and possible linkage between corporate governance reform and carbon related policies.     

Subordinate board structures

The board of directors is a flat governance structure where each director has an equal vote in determining the collective actions taken by the group. Yet, some boards choose to delegate authority for specific tasks to numerous committees, while others choose to create relatively few subcommittees of the board. We investigate the determinants of subordinate board structures, exploring both their benefits and costs. Using a sample of the S&P 1500 we find that subordinate board structures are positively related to board size and the proportion of outside directors, even after controlling firm characteristics such as complexity and ownership structure. Further tests indicate that these board structures can offset the negative associations that board size and the proportion of outsiders can have with firm performance. Yet, in firms with relatively small or insider oriented boards, where co-ordination problems among directors or social loafing may be less pronounced, we find that subordinate board structures are negatively related to firm performance. Categorizing committees as either monitoring or advisory, we find that both types of committees appear related to firm performance. Taken as whole, these results are consistent with the idea that subordinate board structures can be a costly remedy to alleviate problems that arise with larger, more outsider dominated boards.     

Board governance and corporate performance

We examine the link between the monitoring capacity of the board and corporate performance of UK listed firms. We also investigate how firms use the flexibility offered by the voluntary governance regime to make governance choices. We find a strong positive association between the board governance index we construct and firm operating performance. Our results imply that adherence to the board‐related recommendations of the UK Corporate Governance Code strengthens the board's monitoring capacity, potentially helping mitigate agency problems, but that investors do not value it correspondingly. Moreover, in contrast to prior UK findings suggesting efficient adoption of Code recommendations, we find that firms at times use the Code flexibility opportunistically, aiming to decrease the monitoring capacity of the board, which is followed by subsequent underperformance. This finding questions the effectiveness of the voluntary approach to governance regulation followed in the UK and in many countries around the world.     

Board meetings,committee structure,and firm value

In this study, we examine the determinants of board monitoring activity and its impact on firm value for a broad panel of firms over a six-year period from 1999 to 2005. During this period, Congress and the exchanges promulgated regulations that increased pressure upon firms for more independent and active boards. Economists have debated whether board activity and externally imposed regulations benefit or harm firms. We develop and examine several proxies for board monitoring and examine the relationship between board monitoring activity, firm characteristics, and firm value in a structural equation framework. One set of our proxies is based on the number of annual board and Audit Committee meetings. We show that prior performance, firm characteristics and governance characteristics are important determinants of board activity. We also show that the board monitoring is driven by corporate events, such as an acquisition or a restatement of financial statements. We find that board activity has a positive impact on firm value. Our results also indicate that the external pressure has had a salutary effect and recent regulations have led to some increase in firm value. A second set of proxies is based on the shift to a fully independent Audit, Compensation and Nominating Committees. We find that firms increased the independence of these Board committees following the enactment of the 2002 Sarbanes-Oxley Act.     

The moderating role of board gender diversity on the relationship between firm opacity and stock returns

In this study, we examine the impact of board gender diversity on the association between firm opacity and stock price crash. We utilize the negative shock of the 2007–2008 financial crisis to capital markets to examine whether firms with gender-diverse boards witnessed lower stock price crashes due to their lower opacity ex ante. Using a sample of S&P 1500 firms spanning the period 2005–2008, we employ a difference-in-differences research design and find that firms with high opacity ex ante witness more negative returns ex post. We also find that gender-diverse firms ex ante witness less negative returns ex post. Finally, our analysis reveals the moderating role that board gender diversity plays in the association between firm opacity and stock returns around the financial crisis. We subject our results to a range of robustness checks, including instrumental variable regressions, matched-sample analyses, and a set of falsification and placebo tests. Overall, we provide evidence that board gender diversity is associated with increased transparency in financial reporting, which pays off in times of crisis.     

Social Concentration on Boards,Corporate Information Environment and Cost of Capital

Prior evidence on the relationship between demographic diversity in corporate boards and firm performance is mixed. Some studies have found that the relationship between board attributes and firm performance is driven by a firm's information environment. This study examines whether corporate transparency also impacts the relationship between gender and ethnic diversity of directors and firm performance. To test this hypothesis, I use a Herfindahl Index based on directors’ gender and ethnicity to measure board diversity, and an opacity index based on analyst following, analyst forecast error, bid‐ask spread, and share turnover to measure corporate transparency. I find that the cost of capital is positively associated with social concentration on corporate boards and that this premium is larger for highly opaque firms. In further analysis, I find that the interaction of corporate information environment and social concentration on boards is more important for operationally complex firms. Compared with simple firms, operationally complex firms pay a greater premium on their capital if they have a socially concentrated board and an opaque information environment.     

The differential effects of classified boards on firm value

Classified boards actually benefit firms that have low monitoring costs and greater needs for advisory services. Previous literature has emphasized the entrenchment effect of classified boards. However, we find that this adverse impact of classified boards can be offset or even superseded by the potential benefits of board classification for firms who hope to benefit from the advisory services of their independent directors. We show that firms with greater advising needs appoint more outside directors with diverse attributes and expertise, qualifications that enhance the ability to provide useful advice to managers. Furthermore, in such firms, board classification is associated with higher performance sensitivity of forced CEO turnover and better acquisition performance. Conversely, in firms with high monitoring costs, board classification hurts managerial equity-based incentives and risk-taking incentives. These findings suggest how and through which channels classified boards engender the differential effects on firm value.     

The determinants of board size and composition: Evidence from the UK

This paper examines the trends and determinants of board structure for a large sample of UK firms from 1981 to 2002. We extend the predominantly US based literature in a number of important ways. Firstly, a comparative analysis of the UK and US legal and institutional settings leads us to hypothesize that UK boards will play a weaker monitoring role and hence board structures will not be determined by monitoring related factors. Our evidence supports this conjecture, showing that board structure determinants differ in predictable ways across different institutional settings. Secondly, in contrast to recent US mandatory reforms, UK reforms have been voluntary. As such they provide an interesting comparison, being arguably more effective than a mandatory approach by allowing firms to choose board structures most appropriate for their own needs. Our results support this point of view. Although the UK reforms do have a significant impact on board structures, a large number of firms choose not to comply, and those that do appear to do so for strong economic reasons. The reforms also appear to reduce the ability of well performing CEOs to influence board structures.     

Corporate board and board committee independence,firm performance,and family ownership concentration: An analysis based on Hong Kong firms

This study examines whether the relationship between corporate board and board committee independence and firm performance is moderated by the concentration of family ownership. Based on a sample of Hong Kong firms, we find no significant association between the independence of corporate boards or board committees and firm performance in family firms, whereas board independence is positively associated with firm performance in non-family firms. Additionally, our findings show that the proportion of independent directors on the corporate boards of family firms is lower than that of non-family firms, but we find no significant difference in the representation of independent directors on the key committees of corporate boards between family and non-family firms. Overall, these results suggest that the “one size fits all” approach required by the regulatory authorities for appointing independent directors on corporate boards may not necessarily enhance firm performance, especially for family firms. Thus, the requirement to appoint independent directors to the corporate boards of family firms needs to be reconsidered.