The Performance Effects of Corporate Board of Directors

Johanna Palmberg

No 187, Ratio Working Papers from The Ratio Institute

Abstract: This paper examines the relationship between the board-member independence, family control, and financial performance in Swedish listed firms. The degree of independence is defined with respect to the principal owners, the management of the firm, and the employees. The definition of independence, as applied by the Swedish Code of Corporate Governance, together with good accessibility of detailed data on corporate governance variables, makes it possible to apply a precise measure of board-member independency.

The analysis indicates that directors, dependent on the management of the firm dominates the board of director. Board-member independency is found positively affect a firm's financial performance. The negative effect of board-member dependency originates from the firm-related directors whereas dependency on principal owners, families, and employees does not have any impact on the firm investment performance. The results are important in the contemporary political debate about the role of the board of directors as well as its composition. The analysis shows that the definition of independency is important when discussing the board of directors; directors, independent of the firm, not on principal owners, influence the firm investment performance positively.

Keywords: Board Dependency; Family Control; Returns on Investment; Marginal q (search for similar items in EconPapers)
JEL-codes: G30 L20 L21 L22 L25 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012-02-28
New Economics Papers: this item is included in nep-bec and nep-cse
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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