The Causal Impact of Board Structure on Firm Profitability: Evidence from a Crisis

Azin Sharifi (), Shiva Zamani and Luis Seco
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Azin Sharifi: Graduate School of Management and Economics, Sharif University of Technology, Tehran 1458889694, Iran
Shiva Zamani: Graduate School of Management and Economics, Sharif University of Technology, Tehran 1458889694, Iran
Luis Seco: Department of Mathematics, University of Toronto, Toronto, ON M7A 2S4, Canada

JRFM, 2025, vol. 18, issue 10, 1-20

Abstract: This study investigates the causal impact of board governance structures on firm profitability. We develop the Board Structure Influence (BSI) index, a composite metric that captures board independence, diversity, and role distribution—which we conceptualize as three structural pillars of Separation, Variety, and Disparity—to provide a comprehensive measure of governance effectiveness. Using a Difference-in-Differences (DiD) framework centered on the COVID-19 pandemic as an exogenous shock, we identify firms with strong governance and top BSI quartiles and compare their financial performance—measured by net profit margin—against firms with weaker board structures. Our results demonstrate that firms with higher BSI scores experience a statistically significant increase in profitability post-COVID-19. A Causal Forest analysis further reveals that this positive effect is heterogeneous, with the largest firms benefiting most significantly from strong board governance. Robustness checks—including placebo tests, parallel trends validation, and a SUTVA test—affirm the credibility of our findings. This research highlights the strategic importance of board structure for firm resilience during crises. It provides management insights for corporate leaders, investors, and policymakers aiming to align governance reform with financial profitability.

Keywords: sustainable governance; financial profitability; causal analysis; difference-in-differences; board structure; corporate governance; heterogeneous treatment effects; causal forest (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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