Journal of IMS Group

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

The Impact of Board Structure on Corporate Performance in India


Affiliations
1 Apeejay College of Fine Arts, Punjab, Jalandhar, India
2 DIPS IMT, Jalandhar, Punjab, India
3 Apeejay College of Fine Arts, Jalandhar, Punjab, India
     

   Subscribe/Renew Journal


The present paper examines the status of corporate governance in India with special reference to board of directors. It investigates the impact of board of directors on corporate performance of top Indian companies. The board characteristics taken as independent variables are - board size, board composition, CEO duality, board activity, attendance during the meetings, board busyness i.e. directorships in other companies and gender diversity. Sample of top companies listed on BSE is taken to study impact of board characteristics on corporate performance for the year 2015-16 using multiple regression technique. Corporate performance of the companies is measured by Return on Assets and Price to Book Ratio. Size of the company, age and leverage are taken as control variables. The study finds that bigger boards have negative impact on corporate performance while board independence affects performance positively. Frequency of meetings as well as attendance therein is a positive factor influencing corporate performance. As believed in theory, busyness of directors in other companies is found to have negative impact and gender diversity, as anticipated, contributes positively towards corporate performance.

Keywords

Corporate Governance, Board Size, Board Composition, CEO Duality, Gender Diversity, Boards of Directors.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Abidin, Z. Z.; Kamal, N.M. & Jussoff, K. (2009); Board Structure and Corporate Performance in Malaysia, International Journal of Economics and Finance, 1(1), pp. 150-164.

  • Adams, R.B. & Mehran, H. (2003); Is Corporate Governance Different for Bank Holding Companies?, Economic Policy Review, 9(1), pp. 123-142.

  • Adams, R. B., Almeida, H., & Ferreira, D. (2005); Powerful CEOs and their Impact on Corporate Performance. Review of Financial Studies, 18(4), pp. 1403-1432.

  • Adams, R. and Ferreira, D. (2009); Women in the Boardroom and their Impact on Governance and Performance, Journal of Financial Economics, 94, pp. 291-309.

  • Agrawal, A. and Knoeber C. (1996); Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders. Journal of Financial and Quantitative Analysis, 31(3), pp. 377-397.

  • Aguilera, R. V., & Jackson, G. (2003); The Cross-national diversity of Corporate Governance: Dimensions and determinants. The Academy of Management Review, 28(3), pp. 447-465.

  • Arslan, O., Karan, M.B., & Eksi, C. (2010); Board Structure and Corporate Performance. Managing Global Transitions. 8(1), pp. 3-22.

  • Bathala, C. and Rao, R. (1995); The determinants of Board Composition: An Agency perspective. Managerial and Decision Economics, 19, pp. 59-69.

  • Beasley, M. (1996); An empirical analysis of the relation between Board of director Composition and Financial Statement Fraud. Accounting Review, 71, pp. 443–465.

  • . Berkman, H., Cole, R.A. & Fu, J.L. (2009); Expropriation through Loan Guarantees to Related Parties: Evidence from China, Journal of Banking and Finance, 33, pp. 141-156.

  • . Black, B., Jang, H. & Kim, W. (2006); Does Corporate Governance Predict Firms’ Market Values: Evidence from Korea. Journal of Law, Economics, and Organization, 22, pp. 366–413.

  • . Bhagat, S. & Black B. (1999); The Uncertain Relationship between Board Composition and Firm Performance, The Business Lawyer, 54, pp. 921-963.

  • . Brickley, J.A.; Coles, J.L. & Jarrell, G. (1997); Leadership Structure: Separating the CEO and Chairman of the Board, Journal of Corporate Finance, 3(3), pp. 189-220.

  • . Cadbury, A. (1992); Report of the Committee on Financial Aspects of Corporate Governance: The Code of Best Practices, London: Gee Ltd.

  • . Campbell, K. & A. Mýnguez-Vera (2008); Gender Diversity in the Boardroom and Firm Financial Performance, Journal of Business Ethics, 83, pp. 435-451.

  • . Chen, S. K., Wang, Y. P., Lin, B. X. & Wu, L. S. (2010); The frequency and magnitude of earnings management: Time-series and multi-threshold comparisons, International Review of Economics & Finance, 19(4), pp. 671-685.

  • . Cho, D.S., & Kim, J. (2007); Outside directors, ownership structure and firm profitability in Korea, Corporate Governance: An International Review, 15(2), pp. 239-250.

  • . Chugh, L.C.; Meador, J.W. & Kumar, A.S. (2011); Corporate Governance and Firm Performance: Evidence from India, Journal of Finance and Accounting, 7, pp. 1-11.

  • . Clifford, P. & Evans, R. (1997); Non Executive Directors: A Question of Independence, Corporate Governance: An International Review, 5 (4), pp. 224-231.

  • . Coles, J. W., V. B. McWilliams& Sen N. (2001); An examination of the relationship of governance mechanisms to performance, Journal of Management, 27(1), pp. 23-50.

  • . Coles, J.L.; Lemmon, M.L. and Wang, Y.A. (2008); The Joint Determinants of Managerial Ownership, Board Independence and Firm Performance, Second Singapore International Conference on Finance, 2008.

  • . Conger, J, Finegold, D & Lawler III, E (1998); Appraising Boardroom Performance, Harvard Business Review, 76, pp. 136-148

  • . Core, J.E., Holthausen, R.W. & Larcker, D.F. (1999); Corporate Governance, Chief Executive Officer and Firm Performance. Journal of Financial Economics, 51, pp. 371-406.

  • . Davis J.H., Schoorman D & Donaldson L. (1997); Toward a stewardship theory of management. Academy Management Review, 22(1), pp. 20–47.

  • . Donaldson, L. &Davis, J. (1991); Stewardship theory or Agency theory: CEO Governance and Shareholder Returns, Australian Journal of Management, 16 (l), pp. 49-64.

  • . Donaldson, T. & Preston, L.E. (1995); The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications, Academy of Management Review, 20, pp. 65-91.

  • . Drobetz, W., Meyerinck F. V., Oesch D. & Schmid M. (2013); Is Director Industry Experience a Corporate Governance mechanism?, Working Paper, University of Hamburg.

  • . Erhardt, N.L.; Werbel, J.D. & Shrader, C.B. (2003); Board of Director Diversity and Firm Financial Performance, Corporate Governance, an International Review, 11(2), pp. 102-111.

  • . Erickson, J., Park, Y. W., Resing, J. & Shin, H.H. (2005); Board Composition and Firm Value under Concentrated Ownership: The Canadian Evidence. Pacific- Basin Finance Journal, 13, 387-410.

  • . Estes, R.M. (1980); Corporate Governance in the Courts, Harvard Business Review, 58, pp. 50-58.

  • . Fama, E.F. and Jensen M.C. (1983); Separation of Ownership and Control, Journal of Law and Economics, 26, pp. 301-325.

  • . Finkelstein S. & D’Aveni, R.A. (1994); CEO Duality as a Double-Edged Sword: How Boards of Directors Balance Entrenchment Avoidance and Unity of Command, Academy Management Journal, 37(5), pp. 1078–1108.

  • . Forbes, D.P. & Milliken, F. (1999); Cognition and Corporate Governance: Understanding Board of Directors as Strategic Decision-Making Groups, Academy of Management Review, 24(3), pp. 489-505.

  • . Greenbury, R (1995); Directors Remuneration: Report of a Study Group Chaired by Sir Richard Greenbury, Gee; London.

  • . Guest, P.M. (2006); The Determinants of Board Size and Composition: Evidence from the UK, Journal of Corporate Finance, 14(1), pp. 51-72.

  • . Gupta, P.P.; Lam, K.C.K.; Sami, H. & Zhou, H. (2014); Board Diversity and its Effect on Firm Financial and Non-financial Performance, pp. 1–40. Available at SSRN: http://ssrn.com.sci-hub.org/abstract=2531212

  • . Hermalin, B.E. and Weisbach, M.S. (2001); The Effects of Board Composition and Direct Incentives on Firm Performance, Financial Management, 20, pp. 101-112.

  • . Hermalin, B.E., &Weisbach, M.S. (2003); Boards of Directors as an Endogenously determined institution: A Survey of the Economic Literature. Economic Policy Review, 9(1), 7-26.

  • . Hillman, A.J., Shropshire C. & Cannella A. A. (2007); Organizational Predictors of Women on Corporate Board, Academy of Management Journal, 50 (4), pp. 941–952.

  • . Hsu, H. (2010); The Relationship between Board Characteristics and Financial Performance: An Empirical Study of United States IPO, International Journal of Management, 27(2), pp. 332-341.

  • . Jackling, B. & Johl, S. (2009); Board Structure and Firm Performance: Evidence from India’s Top Companies”, Corporate Governance: An International Review, 17(4), pp. 492–509.

  • . Jensen, M. &Meckling, W. (1976); Theory of the Firm; Managerial Behaviour, Agency Costs and Ownership Structure, Journal of Financial Economics, pp. 305-360.

  • . Jensen, M. C. (1993); The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. The Journal of Finance, 48(3), pp. 831-880.

  • . Kathuria V.& Dash S. (1999); Role of Board Size, and Outside Directors on the Performance of Firms – An Investigation, Vikalpa, 24 (3), pp. 11-17

  • . Kiel, G. & Nicholson, G. (2003); Board Composition and Corporate Performance: How the Australian Experience informs Contrasting Theories of Corporate Governance, Corporate Governance: An International Review, 11(3), pp. 189-205.

  • . Klein, A. (1998); Firm Performance and Board Committee Structure, The Journal of Law and Economics, 41(1), pp. 275-304.

  • . Klein, A. (2002); Audit Committee, Board of Director Characteristics, and Earnings Management, Journal of Accounting and Economics, 33(3), pp. 375-400.

  • . Kumar, N. & Singh, J. P. (2013); Effect of Board Size and Promoter Ownership on Firm Value: Some Empirical Findings from India, Corporate Governance, 13(1), pp. 88-98.

  • . Lipton, M. & Lorsch, J.W. (1992); A Modest Proposal for Improved Corporate Governance, The Business Lawyer, 48(1), pp. 59-77.

  • . Lorsch, J.W. & MacIver, E. (1989); Pawns or Potentates: The Reality of America’s Corporate Boards, Harvard Business School Press, Boston, MA.

  • . Millstein, I. (1992); The Limits of Corporate Power: Existing Constraints on the Exercise of Corporate Discretion, Macmillan, New York, NY.

  • . Mintzberg, H. (1983); Power in and around Organizations, Englewood Cliffs, NJ: Prentice Hall.

  • . Morck, R.; Shleifer, A. &Vishny, R. (1988); Management Ownership and Market Valuation: An Empirical Analysis, Journal of Financial Economics, 20, pp. 293-316.

  • . O’Sullivan, N. (2000); The Determinants of Non-Executive Representation on the Boards of Large UK Companies, Journal of Management and Governance, 4, pp. 283-297.

  • . Rajagopalan, N.& Zhang, Y. (2009); Recurring Failures in Corporate Governance: A global disease? Business Horizons, 52(6), pp. 545-552.

  • . Rechner, P.L. & Dalton, D.R. (1991); CEO Duality and Organizational Performance: A Longitudinal Analysis, Strategic Management Journal, 12, pp. 155-160.

  • . Rose, C. (2005); The Composition of Semi-Two-Tier Corporate Boards and Firm Performance. Corporate Governance: An International Review, 13(5), pp. 691-701.

  • . Rosenstein, S. & Wyatt, J.G. (1990); Outside Directors, Board Independence and Shareholder Wealth, Journal of Financial Economics, 26, pp. 175-191.

  • . Sarkar, J. & Sarkar S. (2009); Multiple board appointments and firm performance in emerging economies: Evidence from India, Pacific-Basin Finance Journal, 17(2), pp. 271- 293.

  • . Shleifer, A. &Vishny, R.W. (1997); A survey of Corporate Governance, The Journal of Finance, LII (2), pp. 737-783.

  • . Shrader, C.B., V.B. Blackburn & P. Iles. (1997); Women in Management and Firm Financial Performance: An Exploratory Study, Journal of Managerial Issues, 9, pp. 355–372.

  • . Uadiale, O. M. (2010); The Impact of Board Structure on Financial Performance in Nigeria, International Journal of Business and Management, 5(10), pp. 155-166.

  • . Vafeas, N. (1999); Board Meeting Frequency and Firm Performance, Journal of Financial Economics, 53(1), pp. 113-142.

  • . Weir, C. and Laing, D. (2000); The Performance- Governance Relationship: The Effects of Cadbury Compliance on UK Quoted Companies, Journal of Management and Governance, 4, pp. 265-281

  • . Westphal, J.D. (1999); Collaboration in the Boardroom: Behavioural and Performance Consequences of CEO-Board Social Ties, Academy of Management Journal, 42(1), pp. 7-24.

  • . Yermack, D. (1996); Higher Market Valuation of Companies with a Small Board of Directors, Journal of Financial Economics, 40(2), pp. 185-211.

  • . Zahra, S.A. & Pearce, J.A. (1989); Boards of Directors and Corporate Financial Performance: A Review and Integrative Model, Journal of Management, 15(2), pp. 291-334.


Abstract Views: 246

PDF Views: 0




  • The Impact of Board Structure on Corporate Performance in India

Abstract Views: 246  |  PDF Views: 0

Authors

Payal
Apeejay College of Fine Arts, Punjab, Jalandhar, India
Simranjit Singh
DIPS IMT, Jalandhar, Punjab, India
Monika Mogla
Apeejay College of Fine Arts, Jalandhar, Punjab, India

Abstract


The present paper examines the status of corporate governance in India with special reference to board of directors. It investigates the impact of board of directors on corporate performance of top Indian companies. The board characteristics taken as independent variables are - board size, board composition, CEO duality, board activity, attendance during the meetings, board busyness i.e. directorships in other companies and gender diversity. Sample of top companies listed on BSE is taken to study impact of board characteristics on corporate performance for the year 2015-16 using multiple regression technique. Corporate performance of the companies is measured by Return on Assets and Price to Book Ratio. Size of the company, age and leverage are taken as control variables. The study finds that bigger boards have negative impact on corporate performance while board independence affects performance positively. Frequency of meetings as well as attendance therein is a positive factor influencing corporate performance. As believed in theory, busyness of directors in other companies is found to have negative impact and gender diversity, as anticipated, contributes positively towards corporate performance.

Keywords


Corporate Governance, Board Size, Board Composition, CEO Duality, Gender Diversity, Boards of Directors.

References