Optimizing corporate governance: unraveling the interplay of board structure and firm efficiency

Muhammad Farooq Shabbir, Hassan Danial Aslam, Elaine Yen Nee Oon and Aamir Amin

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2396034

Abstract: This study investigates the relationship between board characteristics and firm efficiency in emerging Asian economies, using stochastic frontier analysis and a panel dataset of 5829 firm-year observations. The results suggest that companies with strong monitoring boards concerning diversity, size, and independence achieve higher efficiency. This study provides more specific results on the importance of board characteristics for firm-level governance and highlights the Asian emerging markets’ focus on good governance practices. The study’s use of firm efficiency as a proxy for performance is a unique framework that mitigates endogeneity issues common in corporate governance variables. This approach is an improvement over previous research that has relied on financial ratios, which need to consider the value of management’s actions and investment decisions affecting future performance. The results contribute to the literature on corporate governance and provide valuable insights for investors in emerging markets.This study uses a stochastic frontier analysis to investigate the link between board features and corporate efficiency in emerging Asian economies. The study indicates that companies with independent, diverse, and well-structured boards perform better, underscoring the importance of good governance in improving firm efficiency. The results emphasize how crucial it is to have strong governance mechanisms that are adapted to the distinct socioeconomic and cultural environments of developing countries. This research provides guidelines for policymakers, investors, and business leaders to optimize governance structures in order to boost organizational effectiveness and attract foreign investment.

Date: 2024
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DOI: 10.1080/23322039.2024.2396034

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