Board independence, investment opportunity set and performance of South African firms

Balachandran Muniandy and John Hillier

Pacific-Basin Finance Journal, 2015, vol. 35, issue PA, 108-124

Abstract: This study examines the association of firm performance and board independence, in concert with growth options for South African firms. It is motivated by the recent reform of the King regime of corporate governance, King III, in 2010. Archival data for firms listed on the Johannesburg Stock Exchange in both the pre-King III (2008–2009) and post-King III (2011–2012) eras are used. Cross-sectional levels and difference analyses are employed to determine whether change in board independence conjoint with growth status has a performance effect for firms. Transition from pre-to post-King III has had a positive impact on the relationship of independent non-executive directorship jointly with growth potential for firms' performance. The current study implies board independence is important. It is relevant for the attraction of foreign investment in economies such as those in the Asia-Pacific, worthy of stressing by corporate regulators and of cognizance by investors. Prior studies relating board independence to firm performance have had mixed and compromised results. This study overcomes limitations of earlier literature and addresses a key feature of corporate governance reform in a developing country.

Keywords: Board independence; Firm performance; South Africa; Investment opportunity set; Endogeneity (search for similar items in EconPapers)
JEL-codes: G32 G34 O16 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:35:y:2015:i:pa:p:108-124

DOI: 10.1016/j.pacfin.2014.11.003

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