Understanding the Impact of Board Structure on Firm Performance: A Comprehensive Literature Review

Phillip Cordwell James

Abstract


There have been numerous studies which examined the impact of board structure on firm performance. However, all these studies have failed to provide any form of consensus on how board structure or board composition impact firm performance. Hence, we are left asking is there an effect on firm performance? The missing link therefore, is the absence of a comprehensive review of the literature which addresses the issue. The objective of this paper is to provide a thorough analysis of previous studies with the aim of providing some direction to and closure of the debate regarding the effect of board structure on firm performance. The results of the literature review showed that there are compelling arguments on both side to either support or refute the hypotheses that board structure impacts firm performance. Hence, paper provides a new direction for that researcher need take in an attempt to answer this decade-old question.


Keywords


Firm Performance; Board Composition; Board Structure; Independent Directors

Full Text:

PDF

References


Abdullah, S. (2004). Board composition, CEO duality and performance among Malaysian

listed companies. Corporate Governance: The International Journal of Business in

Society, 4(4), 47-61.

Adams, R., and Ferreira, D. (2007). A theory of friendly boards, Journal of Finance, 62, 217-

Anderson, C., and Anthony, N. (1986). The new corporate directors. New York: John Wiley &

Sons, Inc.

Anderson, C.R., and Reeb, M. (2004). Board composition: Balancing family influence in S & P

firms, Administrative Science Quarterly,49, 209-237.

Agrawal, A., and Knoeber, C.R. (1996). Firm performance and mechanism to control agency

problems between managers and shareholders, Journal of Financial and Quantitative

Analysis, 31: 337-398.

Aguilera, R.U. and Cuervo-Cazurra, A. (2004). Codes of good governance world-wide: What is

the trigger? Organizational Studies, 25:415-443.

Aran,J.D., and Cowen, S. (1983). Information for corporate directors: The role of the board in

the management process (# 83146). Institute of Management Accountants.

Arosa, B., Iturralde, T., and Maseda, A. (2010). Outsiders on the board of directors and firm

performance: Evidence from Spanish non-listed family firms. Journal of Family Strategy,

, 236-245.

Bammens, Y., Voordeckers, W. and Van Gils, A. (2008). Boards of directors in family firms: A

generational perspective, Small Business Economics, 31, 163-180.

Baysinger, B., and Butler, H. (1985). Corporate governance and the board of directors:

Performance effects of changes in board composition, Journal of Law Economics, and

Organization, 1 (1), 101-124.

Baysinger, B. and Hoskisson, R.E. (1990). The composition of board of directors and strategy

control: effects on corporate strategy, Academy of Management Review, 15, 17-87.

Beasley, M. (1996). An empirical analysis of the relationship between the board of director

composition and financial statement fraud. The Accounting Review, 71, 443-465.

Bennedsen, M., Kongsted, H.C., and Nielson, K.M. (2008). The casual effect of board size in

the performance of small and medium-sized firms. Journal of Banking and Finance, 32:

-1109.

Berg, S., and Smith, S.K. (1978). CEO and board chairman: a quantitative study of dual vs

unitary board leadership. Directors and Boards, 3(1), 34-39.

Bhagat, S. and Black, B. (2002). The non-correlation between board independence and long-term

performance. Journal of Corporation Law 27, 231-274.

Brennan, N. (2006). Boards of directors and firm performance: Is there an expectation gap?

Corporate Governance: An International Review14(6), 577-593.

Brickley, J.A., Coles, J.L., and Jarrell, G. (1997). Leadership structure: Separating the CEO and

chairman of the board. Journal of Corporate Finance, 3 (3), 189-220.

Bryd, J.W., and Hickman, K.A. (1992). Do outside directors monitor managers? Evidence

from tender offers bids. Journal of Financial Economics, 32, 195-221.

Chahine, S., and Filatotchev, (2011). The effects of corporate governance and audit and non-

audit fees on IPO value. The British Accounting Review, 43, 155-172.

Chaganti, R.S., Mahajan, V., and Sharman, S. (1985). Corporate board size, composition

and corporate failures in retailing industries. Journal of Management Studies, 22(4),

-417.

Chrisman, J., Kellermanns, W., Chan, K., and Liano, K. (2010). Intellectual foundations of

current research in family business: An identification of review of 25 influential

articles, Family Business Review, 23, 9-26.

Clendenin, W.D. (1972). Company presidents look at the board of directors, California

Management Review, Spring: 60-66.

Daily, C.M., Dalton, D.R. and Cannella, A. (2003). Corporate governance: Decades of dialogue

and data, Academy of Management Review, 28: 371-82.

Daily, C.M., and Dalton, D.R. (1994). Bankruptcy and corporate governance: the impact of

board composition and structure, Academy of Management Journal, 37, 1603- 1617.

Dalton, D., and Dalton, C. (2011). Integration of micro and macro studies in governance research

: CEO duality, board composition and financial performance, Journal of Management, 37

(2), 404-411.

Dalton. D.R., Hitt, M.A., Certo, S.T., and Dalton, C.M. (2008). The fundamental agency

problem and its mitigation: Independence equity and the market for corporate control.

Annals of the Academy Management (1), 1-64.

Dalton, D.R., Daily, C.M., Ellstrand, A. and Johnson, J.L. (1988). Meta-analytic reviews of

board composition, leadership structure and firm performance. Strategic Management

Journal, 19, 269-290.

Dalton, D.R., Daily, C.M., Johnson, J.L., and Ellstrand, A.E. (1999). Number of directors and

financial performance: A meta-analysis, Academy of Management Journal, vol. 42.

-686.

Dayton, K.N. (1984). Corporate governance-the other side of the coin. Harvard Business

Review, 62, (1), 34-37.

Demb, A. and Neubauer, F. (1992). The corporate board, Oxford University Press, Oxford.

De Andres, P., Azofra, V., and Lopez, F. (2005). Corporate boards in OECD countries: Size,

composition, functioning and effectiveness, Corporate Governance, 13(2), 197-210.

Dehaene, A., De Vuyst, V., and Ooghe, H. (2001). Corporate governance performance and

board structure in Belgian companies, Long Range Planning, 34, 383-398.

Denis, D. K. and McConnell, J.J. (2003). International corporate governance, Journal of

Financial and Quantitative Analysis, 38(1), 1-36.

Deutsch, Y. (2005). The impact of board composition on firms’ critical decisions: A meta-

analytic review, Journal of Management, 31: 424-44.

Dey, E., Engel, E., Liu, X. (2009). Determinants and implications of board leadership structure.

University of Chicago Booth School Working Paper,09 – 23.

Donaldsson, L. and Davis, J.H. (1991). Stewardship theory or agency theory: CEO governance

and shareholder returns. Australian Journal of Management, 16, (1), 49-64.

Dobrzynski, J.H. (1991). One hat too many. Business Week, 18, 124.

Dulewicz, V., and Herbert, P. (2004). Does the composition and practice of boards of directors

bear any relationship to the performance of their companies? Corporate Governance:

An International Review 12(3): 263-280.

Eisenberg, T., Sundgren, S., and Wells, M.T. (1998). Larger boards size and decreasing firm

value in small firms, Journal of Financial Economics, 48, 35-54.

Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate

Governance: An International Review, 15 (6) 1203-1214.

Enrione, A., Mazza, C. and Zerboni, F. (2006). Institutionalizing codes of governance,

American Behavioral Scientist, 49: 961-73.

Evans, C.R. and Dion, K.L. (1991). Group cohesion and performance: A meta-analysis,

Small Group Research 22,175-186.

Faleye, O. (2007). Does one hat fir all? The case of corporate leadership structure. Journal of

Management and Governance, 11: 239-259.

Fama, E.F. (1980). Agency problems and the theory of the firm. Journal of Political Economy,

(2), 288-307.

Fama, E.F., and Jensen, M.C. (1983). Separation of ownership and control, Journal of Law

Economics, 26, 301-325.

Fiegener, M., Brown, M., Dreux, R. and Dennis, W.J. (2000). The adoption of outside boards by

small private US firms, Entrepreneurship and Regional Development, 12, 291-309.

Finkelstein, S., and D’Aveni, R.A. (1994). CEO duality as a double-edge sword: how boards of

directors balance entrenchment avoidance and unity of command. Academy of

Management Journal, 37, 1079-1108.

Forbes, D.P., and Milliken, F. (1999). Cognition and corporate governance: Understanding

board of directors as strategic decision-making groups. Academy of Management Review,

:489-505.

Fried, V.H., Bruton, G.D. and Hisrich, R.D. (1998). Strategy and the board of directors in

venture capital-backed firms, Journal of Business Venturing, 13, 493-503.

Giovannini, R. (2014). Corporate governance, family ownership and performance. Journal of

Management and Governance, 14, 145-166.

Gracia-Olalla, M., and Gracia Ramos, R. (2010). Family ownership, structure and board of

directors effectiveness: Empirical evidence from European firms. 9th Annual IFERA

Conference.

Garcia-Ramos, R., and Garcia-Olalla, M. (2011). Board characteristics and firm performance in

Public founder-and non-founder-led family business, Journal of Family Business Strategy

, 220-231.

Goel, S., Mazzola, P. Phan, H., Piper, M. and Zachary, R. (2012). Strategy, ownership,

governance and socio-psychological perspectives on family business from around the

world, Journal of Family Business Strategy, 3, 54-65.

Goodstein, J., Gautam, K. and Boeker, W. (1994). The effects of board size and diversity on

strategic change, Strategic Management Journal, 15, 241-250.

Goodwin, J.D., and Seow, J.L. (2000). Corporate governance in Singapore: perceptions of

investors, directors, and auditors. Accounting and Business Review, 7(1), 39-68.

Golden, B.R. and Zajac, E. J. (2001). When will boards influence strategy? Inclination x power =

strategy change, Strategic Management Journal, 22: 1087-111.

Hampel, R. (1998). Committee on corporate governance: Final report. Gee Publishing, London.

Harris, M., and Raviv, A. (2008). A theory of board control and size, The Review of Financial

Studies, 21, 1797-1831.

Heller, J.R. and Milton, F. (1972). The board of directors: Legalistic anachronism or vital force,

California Management Review, Spring: 24-30.

Heracleous, L. (2001). What is the impact of corporate governance on organizational

performance? Corporate Governance: An International Review, 9; 165- 73.

Hermalin, B. and Weisbach, M. (2003). Boards of directors as an endogenously determined

institution: A survey of the economic literature, FRBNY Economic Policy Review 9,

-26.

Hermalin, B. and Weisbach, M. S. (1991). The effects of board composition and direct incentive

on firm performance. Financial Management, 20 (4), 101-112.

Higgs, D. (2003). Review of the effectiveness of non-executive directors. Department of Trade

and Industry, London.

Hoskisson, R.E., Hilt, M.A., Johnson, R.A., and Grossman, W. (2002). Conflicting voices: The

effects of institutional ownership heterogeneity and internal governance on corporate

innovation strategies, Academy of Management Journal, 45: 697-716.

Hossain, M., Prevost, A.K., and Roa, R.P. (2001). Corporate governance in New Zealand: The

effect of the 1993 Companies Act on the relation between board composition and firm

performance, Pacific-Basin Finance Journal, 9, 119-145.

Hsu, H. and Wu, C. (2014). Board composition, grey directors and corporate failure in the UK,

The British Accounting Review, 46, 215-227.

Hunther, J. (1997). An empirical test of the effects of board size on firm efficiency, Economics

Letters, 54, 259-264.

Ingley, C. and Van Der Walt, N. (2005). Do board processes influence director and board

performance? Statutory and performance implications, Corporate Governance: An

International Review,13: 632-59.

Iyengar, R., and Zampelli, E.M. (2009). Self-selection, endogeneity, and relationship between

CEO duality and firm performance. Strategic Management Journal, 30: 1092-1112.

Jackling, B., and Johl, S. (2009). Board structure and firm performance: Evidence from India’s

top companies, Corporate Governance: An International Review, 17(4), 492-509.

Jaskiewicz, P., and Klein, S. (2007). The impact of goal alignment on board composition and

board size in family business. Journal of Business Research, 60, 1080-1089.

Jensen, M., C. and Zajac, E. J. (2004). Corporate elites and corporate strategy: How demographic

preferences and structural position shape the scope of the firm, Strategic Management

Journal, 25: 507-24.

Jensen, M.C. (1993) The modern industrial revolution, exit and the failure of internal control

systems, Journal of Finance, 48(3), 831-880.

Jensen, M.C., and Meckling, N. (1976). Theory of the firm: Managerial behavior, agency cost

and structure. Journal of Financial Economics, 3(4), 305-360.

John, K. and Senbet, L.W. (1998). Corporate governance and board effectiveness, Journal of

Finance, 22, 371-403.

Johnson, J.L., Daily, C.M. and Ellstrand, A. E. (1996). Boards of directors: A review and

research agenda, Journal of Management, 22: 409-38.

Judge, W. Q. and Zeithaml, C.P. (1992). Institutional and strategic choice perspectives on board

Involvement in the strategic decision process, Academy of Management Journal, 35:

-94.

Kiel, G.C. and Nicholson, G.J. (2003). Board composition and corporate performance: How the

Australian experience informs contrasting theories of corporate governance. Corporate

Governance: An International Review, 11(3), 189-205.

Kula, V. (2005). The impact of the roles, structure, strategy and process of boards on firm

performance: evidence from Turkey. Corporate Governance, 13(2).

Lane, S., Astrachan, J., Keyt, A., and McMillian, K. (2006). Guidelines for family business

boards of directors, Family Business Review, 19, 147-167.

Levy, (1981). Reforming board reform. Harvard Business Review, 166-172.

Mace, M. (1976). Attracting new directors, Harvard Business Review, September-October: 46-

Machin, J.L.H. and Wilson, L.S. (1979). Closing the gap between planning and controls, Long

Range Planning, 12: 16-33.

Mak, Y.T., and Li, Y. (2001). Determinants of corporate ownership and board structure:

Evidence from Singapore, Journal of Corporate Finance, 7, 235-256.

Mak, Y.T. and Roush, M.L. (2000). Factors affecting the characteristics of boards of directors:

An empirical study of New Zealand initial public offering firms, Journal of Business

Research, 47, 147-159.

Mallette, P., and Fowler, K.L. (1992). Effects of board composition and stock ownership on the

adoption of “poison pills”, Academy of Management Journal, 35, (5), 1010-1035.

Mashayekhi, B. and Bazaz, M. (2008). Corporate governance and firm performance in Iran,

Journal of Contemporary Accounting and Economics 4(2) 156-172.

McKnight, P., Mira, S. (2003). Corporate Governance mechanisms, agency costs and firm

performance in UK firms http://ssrn.com/abstract

Miller, D., and Friesen, P. (1997). Strategy-making in context: The empirical archetypes.

Journal of Management Studies, 1(4), 253-280.

Millstein, I. (1991). The limits of corporate power: existing constraints on the exercise of

corporate discretion. New York: MacMillan.

Minichilli, A., Zattoni, A., and Zona, F. (2009). Making board effective: An empirical

examination of board task performance, British Journal of Management, 20, 55-74.

Monks, R. and Minow, N. (2008). Corporate governance, Wiley, London.

Nicholson, G.J., and Kiel, G.C. (2007). Can directors impact performance? A case-based test of

Three theories of corporate governance, Corporate Governance: An International Review

, 585-608.

O’Connell, U., and Cramer, N. (2010). The relationship between firm performance and board

characteristics in Ireland, European Management Journal, 28, 387-399.

Patton, A., and Baker, J.C. (1987). Why won’t directors rock the boat? Harvard Business Review

, 10-18.

Pugliese, A., Bezemer, P., Zattoni, M., & Volberda, H. (2009). Boards of directors’ contribution

to strategy: A literature review and research agenda. Corporate Governance: An

International Review, 17(3), 292-306.

Raheja, C.G. (2005). Determinants of board size and composition: A theory of corporate boards,

Journal of Financial and Quantitative Analysis, 40, (2), 283-306.

Rechner, P.L. (1989). Corporate governance: fact or fiction? Business Horizon, 32 (4), 11-15.

Rechner, P.L., and Dalton, D.R. (1991). CEO duality and organizational performance: A

longitudinal analysis. Strategic Management Journal, 35 (5), 1010-1035.

Ruigrok, W., Peck, S., and Keller, P. (2006). Board characteristics and involvement in the

strategic decision-making: Evidence from Swiss companies, Journal of Management

Studies, 43: 1201-26.

Setia-Atmaja, L., Haman, J., and Tanewski, G. (2011). The role of board independence in

mitigating agency problems in Australian family firms. The Accounting Review, 43,

-246.

Sciascia, S., and Mazzola, P. (2008). Family involvement in ownership and management:

Exploring nonlinear effects on performance, Family Business Review, 21 (4), 331-345.

Sheridan, L., Jones. E. and Marston, C. (2006). Corporate governance codes and the supply of

corporate information in the UK, Corporate Governance: An International Review, 12:

-99.

Shivdasani, A. (1993). Board composition, ownership structure and hostile take-overs. Journal of

Accounting and Economics, 16, 167-198.

Shleifer, A., and Vishny, R.W (1997). A survey of corporate governance, Journal of Finance,

(2), 737-783.

Singh, M. and Davidson, W.N. (2003). Agency costs, ownership structure and corporate

Governance mechanisms, Journal of Banking and Finance, 27, 793-816.

Solomon, L.D. (1993). On the frontier of capitalism: Implementation of humanomics by

modern public held corporation: a critical assessment. Washington and Lee Law

Review, 50(4), 1625-1671.

Stoeberl, P.A., and Sherony, B.C. (1985). Board efficiency and effectiveness. Handbook for

Corporate Directors, McGraw-Hill, New York.

Uhlaner, L., Wright, M., and Huse, M. (2007). Private firms and corporate governance: An

integrated economic and management perspective, Small Business Economics, 29,

-241.

Vafeas, N. (1999). Board meeting frequency and firm performance, Journal of Financial

Economics, 53, 113-142.

Vafeas, N. and Theodorou, E. (1998). The relationship between board structure and firm

performance in the UK. British Accounting Review, 30: 383-407.

Vance, J.O. (1979). The care and feeding of the board of directors, California Management

Review, Summer: 29-34.

Voordeckers, W., Van Gils, A., and Van dan Heuvel, J. (2007). Board composition in small and

medium-sized family firms, Journal of Small Business Management, 45, 137-156.

Voordeckers, W. (2006). Board roles in small and medium-size family business: Performance

and importance, Corporate Governance: An International Review, 14, 467-485.

Weisbach, M (1988). Outside directors and CEO turnover, Journal of Financial Economics, 20,

-460.

Xie, B., Davidson, W.N. and Datalt, P.J. (2003). Earnings management and corporate

governance: the role of the board and audit committee, Journal of Corporate Finance,

, 295-316.

Yermack, D. (1996). Higher market valuations of companies with a small board of directors.

Journal of Financial Economics, 40, 185-211.

Zahra, S.A. and Pearce, J. (1989). Boards of directors and corporate financial performance: A

review and integrative model, Journal of Management, 15: 291-334.




DOI: http://dx.doi.org/10.18533/ijbsr.v10i1.1271

Refbacks

  • There are currently no refbacks.




Copyright (c) 2020 Phillip Cordwell James

 ...........................................................................................................................

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

............................................................................................................................

If you find difficulties in submitting manuscript please forward your doc file to support@thejournalofbusiness.org. Our support team will assist you in submission process and other technical matters.

In order to get notifications on inbox please add  this domain thejournalofbusiness.org in your email safe list.

International journal of business and social research (Print)
ISSN 2164-2540

International journal of business and social research (Online)
ISSN 2164-2559

[International Journal of Business and Social Research (IJBSR) previously published by MIR Center for Socio-Economic Research, MD, USA. From February 2018 this journal is published by the LAR Center Press, OR, USA]