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Does the Composition and Practice of Boards of Directors Bear Any Relationship to the Performance of their Companies?

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  • Victor Dulewicz
  • Peter Herbert

Abstract

Board composition data and evaluations about how listed‐company boards actually performed in 1997 were related to the performance of their companies over the ensuing three years. Statistical analyses were conducted on the relationships between Board Composition, Practice and Potential in 1997 and subsequent Company Performance, based on measures of Cash Flow Return on Total Assets (CFROTA) and Sales Turnover. Hypotheses were formulated in relation to three theories of the board and to various principles of the Combined Code and recommendations of the Higgs Review. Most were not supported and the results generally provide scant support for the main theories of the board. Board practice on the tasks was generally not linked to company performance, whereas board potential was significantly related on six of the 16 tasks of the board. Possible explanations for these findings are discussed.

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  • Victor Dulewicz & Peter Herbert, 2004. "Does the Composition and Practice of Boards of Directors Bear Any Relationship to the Performance of their Companies?," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(3), pages 263-280, July.
    • Handle: RePEc:bla:corgov:v:12:y:2004:i:3:p:263-280
    DOI: 10.1111/j.1467-8683.2004.00368.x
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    References listed on IDEAS

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    1. Cadbury, Adrian, 2002. "Corporate Governance and Chairmanship: A Personal View," OUP Catalogue, Oxford University Press, number 9780199252008.
    2. Stiles, Philip & Taylor, Bernard, 2001. "Boards at Work: How Directors View their Roles and Responsibilities," OUP Catalogue, Oxford University Press, number 9780198288763.
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    Cited by:

    1. Shams Pathan & Michael Skully & J. Wickramanayake, 2007. "Board Size, Independence and Performance: An Analysis of Thai Banks," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 14(3), pages 211-227, September.
    2. Kathy Fogel & Liping Ma & Randall Morck, 2021. "Powerful independent directors," Financial Management, Financial Management Association International, vol. 50(4), pages 935-983, December.
    3. Phillip C. James, 2020. "Understanding the Impact of Board Structure on Firm Performance: AComprehensive Literature Review," International Journal of Business and Social Research, LAR Center Press, vol. 10(1), pages 1-12, January.
    4. Fidanoski, Filip & Mateska, Vesna & Simeonovski, Kiril, 2013. "Corporate Governance and Bank Performance: Evidence from Macedonia," MPRA Paper 46773, University Library of Munich, Germany, revised Mar 2013.
    5. Jacqueline Christensen & Pamela Kent & James Routledge & Jenny Stewart & Gary Monroe, 2015. "Do corporate governance recommendations improve the performance and accountability of small listed companies?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 133-164, March.
    6. Dalilawati Zainal & Norhayah Zulkifli & Zakiah Saleh, 2013. "Corporate Board Diversity in Malaysia: A Longitudinal Analysis of Gender and Nationality Diversity," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(1), pages 136-148, January.
    7. Dong, Yizhe & Girardone, Claudia & Kuo, Jing-Ming, 2017. "Governance, efficiency and risk taking in Chinese banking," The British Accounting Review, Elsevier, vol. 49(2), pages 211-229.
    8. Phillip C. James, 2020. "Understanding the Impact of Board Structure on Firm Performance: AComprehensive Literature Review," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 10(1), pages 1-12, January.
    9. Monda, Barbara & Giorgino, Mrco, 2013. "Corporate Governance and Shareholder Value in Listed Firms: An Empirical Analysis in Five Countries (France, Italy, Japan, UK, USA)," MPRA Paper 45422, University Library of Munich, Germany.
    10. James J. Cordeiro & Rajaram Veliyath & Jane B. Romal, 2007. "Moderators of the Relationship Between Director Stock‐Based Compensation and Firm Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1384-1393, November.
    11. Ma’aji, Muhammad M. & Anderson, Ediri O. & Colon, Christine G., 2021. "The Relevance of Good Corporate Governance Practices to Bank Performance," OSF Preprints 8jx2y, Center for Open Science.
    12. Ayuso, Silvia & Argandoña, Antonio, 2007. "Responsible corporate governance: Towards a stakeholder board of directors?," IESE Research Papers D/701, IESE Business School.
    13. Gaganis, Chrysovalantis & Liu, Liuling & Pasiouras, Fotios, 2015. "Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation," Journal of Financial Stability, Elsevier, vol. 18(C), pages 55-77.
    14. Pietro Marchetti & Valeria Stefanelli, 2009. "Does the compensation level of outside director depend on its personal profile? Some evidence from UK," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 13(4), pages 325-354, November.
    15. Leung, Sidney & Richardson, Grant & Jaggi, Bikki, 2014. "Corporate board and board committee independence, firm performance, and family ownership concentration: An analysis based on Hong Kong firms," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 16-31.
    16. Ines Kateb & Ines Belgacem, 2024. "Navigating governance and accounting reforms in Saudi Arabia's emerging market: impact of audit quality, board characteristics, and IFRS adoption on financial performance," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(2), pages 290-312, June.
    17. Holm, Claus & Schøler, Finn, 2008. "Reduction of Asymmetric Information through Corporate Governance Mechanisms : The Importance of Ownership Dispersion and International," Accounting Research Center Working Papers A-2008-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    18. Rebeiz, Karim S., 2018. "Relationship between boardroom independence and corporate performance: Reflections and perspectives," European Management Journal, Elsevier, vol. 36(1), pages 83-90.
    19. Irina Berezinets & Kirill Berezkin & Yulia Ilina & Irina Naoumova, 2019. "Board Of Directors As A Factor Of Firm Performance In Innovative Companies," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(06), pages 1-26, August.
    20. Isabel-María García-Sánchez, 2010. "The effectiveness of corporate governance: board structure and business technical efficiency in Spain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(3), pages 311-339, September.
    21. Mohammad Ziaul Hoque & MD. Rabiul Islam & Mohammad Nurul Azam, 2013. "Board Committee Meetings and Firm Financial Performance: An Investigation of Australian Companies," International Review of Finance, International Review of Finance Ltd., vol. 13(4), pages 503-528, December.

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