The effectiveness of board independence in high-discretion firms

Hui Liang James, Nilakshi Borah and Roger Lirely

The Quarterly Review of Economics and Finance, 2022, vol. 85, issue C, 103-117

Abstract: We examine the impact of managerial discretion on the independence of firms’ boards and firm performance for the period 1998-2013. We find that high-discretion firms, generally characterized by high product differentiability, high market growth, and a wider array of potential courses of action available to executives, have a smaller percentage of independent directors and a lower likelihood of CEO-chairman duality. Furthermore, firm performance is inversely related to board independence in high-discretion firms, and the negative effect is greater when they are associated with a high cost of acquiring information. Our findings indicate that a uniform “one-size-fits-all” reform of corporate boards may impair board effectiveness in some types of firms.

Keywords: Board composition; Leadership structure; Managerial discretion; Firm performance (search for similar items in EconPapers)
JEL-codes: G34 G38 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:85:y:2022:i:c:p:103-117

DOI: 10.1016/j.qref.2020.10.021

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