Board of Directors, Corporate Governance and Firm Performance
Nava Ramezanian Bajgiran
Abstract:
From a theoretical perspective, corporate governance provisions could be beneficial in mitigating the agency conflicts by increasing the transparency and providing greater monitoring and control over the actions of the company executives. A common approach for evaluating corporate governance quality and board’s behaviour is to identify boards’
characteristics and composition, and examine their impacts on different firm outcomes.
However, the empirical research is rather controversial, and there is no consensus on this relationship. The present study introduces a top-down approach for evaluating the board of directors’ performance in a more dynamic context. This is in contrast to existing measures of board performance as it considers different board characteristics being exogenous and instead focuses on the outcomes of the decisions they make. Using a Principal Component Analysis, this study constructs a new index for assessing corporate governance quality and its impact on firm performance. It also seeks to find whether firms with less efficient board of directors are more likely to be sensitive to different board characteristics.
