IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v11y2019i24p7121-d297110.html
   My bibliography  Save this article

Independent Directors and Organizational Performance: New Evidence from A Meta-Analytic Regression Analysis

Author

Listed:
  • Eugenio Zubeltzu-Jaka

    (Department of Accounting and Finance, Basque Country University, Comandante Izarduy 23, 01006 Vitoria-Gasteiz, Spain)

  • Eduardo Ortas

    (Department of Accounting and Finance, University of Zaragoza, Plaza de la Constitución s/n, 22001 Huesca, Spain)

  • Igor Álvarez-Etxeberria

    (Department of Accounting and Finance, Basque Country University, Plaza de Oñati 1, 20018 San Sebastián, Spain)

Abstract

This study not only revisits, from a meta-analytic perspective, the influence of firms’ boardroom independence on corporate financial performance, but also addresses the way that countries’ social and institutional contexts moderate that connection. A meta-regression covering 126 independent samples reveals that firms’ boardroom independence has a positive and negative effect on accounting and market-based measures of corporate financial performance, respectively. Further analyses reveal that while the firms’ board independence-financial performance connection is stronger in non-communitarian societies, that relationship becomes weaker in countries with greater developed mechanisms to protect the interest of minority investors. These results are robust to different model specifications and to the presence of a set of methodological control variables. Our results are of outstanding relevance for companies’ board composition processes by suggesting the way that corporations should actively re-balance the proportion of independent directors across different social and institutional contexts to ensure their financial success.

Suggested Citation

  • Eugenio Zubeltzu-Jaka & Eduardo Ortas & Igor Álvarez-Etxeberria, 2019. "Independent Directors and Organizational Performance: New Evidence from A Meta-Analytic Regression Analysis," Sustainability, MDPI, vol. 11(24), pages 1-25, December.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:24:p:7121-:d:297110
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/11/24/7121/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/11/24/7121/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lau, Chung-Ming & Fan, Dennis K.K. & Young, Michael N. & Wu, Shukun, 2007. "Corporate governance effectiveness during institutional transition," International Business Review, Elsevier, vol. 16(4), pages 425-448, August.
    2. Filip Fidanoski & Kiril Simeonovski & Vesna Mateska, 2014. "The Impact of Board Diversity on Corporate Performance: New Evidence from Southeast Europe," Advances in Financial Economics, in: Corporate Governance in the US and Global Settings, volume 17, pages 81-123, Emerald Group Publishing Limited.
    3. Jeroen Weimer & Joost Pape, 1999. "A Taxonomy of Systems of Corporate Governance," Corporate Governance: An International Review, Wiley Blackwell, vol. 7(2), pages 152-166, April.
    4. Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3213-3226.
    5. Geoffrey Owen & Tom Kirchmaier & Jeremy Grant, 2006. "Corporate Governance in the US and Europe: Where Are We Now?," Palgrave Macmillan Books, in: Corporate Governance in the US and Europe, chapter 1, pages 1-20, Palgrave Macmillan.
    6. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    7. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    8. Francis, Bill B. & Hasan, Iftekhar & Wu, Qiang, 2012. "Do corporate boards matter during the current financial crisis?," Review of Financial Economics, Elsevier, vol. 21(2), pages 39-52.
    9. Dawna L. Rhoades & Paula L. Rechner & Chamu Sundaramurthy, 2001. "A Meta‐analysis of Board Leadership Structure and Financial Performance: are “two heads better than one”?," Corporate Governance: An International Review, Wiley Blackwell, vol. 9(4), pages 311-319, October.
    10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    11. Stefan Tengblad & Claes Ohlsson, 2010. "The Framing of Corporate Social Responsibility and the Globalization of National Business Systems: A Longitudinal Case Study," Journal of Business Ethics, Springer, vol. 93(4), pages 653-669, June.
    12. 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.
    13. Stefan Beiner & Wolfgang Drobetz & Markus M. Schmid & Heinz Zimmermann, 2006. "An Integrated Framework of Corporate Governance and Firm Valuation," European Financial Management, European Financial Management Association, vol. 12(2), pages 249-283, March.
    14. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    15. Roman Horváth & Persida Spirollari, 2012. "Do the Board of Directors' Characteristics Influence Firm's Performance? The U.S. Evidence," Prague Economic Papers, Prague University of Economics and Business, vol. 2012(4), pages 470-486.
    16. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    17. Gales, Lawrence M. & Kesner, Idalene F., 1994. "An analysis of board of director size and composition in bankrupt organizations," Journal of Business Research, Elsevier, vol. 30(3), pages 271-282, July.
    18. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    19. Amy J. Hillman & Albert A. Cannella & Ramona L. Paetzold, 2000. "The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change," Journal of Management Studies, Wiley Blackwell, vol. 37(2), pages 235-256, March.
    20. Nazim Hussain & Ugo Rigoni & René P. Orij, 2018. "Corporate Governance and Sustainability Performance: Analysis of Triple Bottom Line Performance," Journal of Business Ethics, Springer, vol. 149(2), pages 411-432, May.
    21. Fabio Bertoni & Michele Meoli & Silvio Vismara, 2014. "Board Independence, Ownership Structure and the Valuation of IPOs in Continental Europe," Post-Print hal-02313136, HAL.
    22. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    23. Rosenstein, Stuart & Wyatt, Jeffrey G., 1990. "Outside directors, board independence, and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 26(2), pages 175-191, August.
    24. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    25. Gregory G. Dess & Richard B. Robinson, 1984. "Measuring organizational performance in the absence of objective measures: The case of the privately‐held firm and conglomerate business unit," Strategic Management Journal, Wiley Blackwell, vol. 5(3), pages 265-273, July.
    26. Donald C. Hambrick & Sydney Finkelstein, 1995. "The effects of ownership structure on conditions at the top: The case of CEO pay raises," Strategic Management Journal, Wiley Blackwell, vol. 16(3), pages 175-193.
    27. Alessandro Zattoni & Francesca Cuomo, 2008. "Why Adopt Codes of Good Governance? A Comparison of Institutional and Efficiency Perspectives," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(1), pages 1-15, January.
    28. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    29. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
    30. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    31. Chenglong Zheng & Roy Kouwenberg, 2019. "A Bibliometric Review of Global Research on Corporate Governance and Board Attributes," Sustainability, MDPI, vol. 11(12), pages 1-25, June.
    32. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
    33. Stiles, Philip & Taylor, Bernard, 2001. "Boards at Work: How Directors View their Roles and Responsibilities," OUP Catalogue, Oxford University Press, number 9780198288763.
    34. Kenneth J. Rediker & Anju Seth, 1995. "Boards of directors and substitution effects of alternative governance mechanisms," Strategic Management Journal, Wiley Blackwell, vol. 16(2), pages 85-99.
    35. Jyoti Mahadeo & Teerooven Soobaroyen & Vanisha Hanuman, 2012. "Board Composition and Financial Performance: Uncovering the Effects of Diversity in an Emerging Economy," Journal of Business Ethics, Springer, vol. 105(3), pages 375-388, February.
    36. Ruth V. Aguilera & Igor Filatotchev & Howard Gospel & Gregory Jackson, 2008. "An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities," Organization Science, INFORMS, vol. 19(3), pages 475-492, June.
    37. Baysinger, Barry D & Butler, Henry N, 1985. "Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 101-124, Spring.
    38. Rajagopalan, Nandini & Zhang, Yan, 2008. "Corporate governance reforms in China and India: Challenges and opportunities," Business Horizons, Elsevier, vol. 51(1), pages 55-64.
    39. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    40. Niels Hermes & Theo J.B.M. Postma & Orestis Zivkov, 2006. "Corporate governance codes in the European Union: Are they driven by external or domestic forces?," International Journal of Managerial Finance, Emerald Group Publishing, vol. 2(4), pages 280-301, September.
    41. James G. Combs & David J. Ketchen & Alexa A. Perryman & Maura S. Donahue, 2007. "The Moderating Effect of CEO Power on the Board Composition–Firm Performance Relationship," Journal of Management Studies, Wiley Blackwell, vol. 44(8), pages 1299-1323, December.
    42. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    43. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 1-36, March.
    44. Geoffrey Owen & Tom Kirchmaier & Jeremy Grant, 2006. "Corporate Governance in the US and Europe," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-51245-0, December.
    45. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "Corrigendum to "The effect of international institutional factors on properties of accounting earnings"; [Journal of Accounting and Economics 29 (2000) 1-51]," Journal of Accounting and Economics, Elsevier, vol. 30(2), pages 241-241, October.
    46. Lefort, Fernando & Urzúa, Francisco, 2008. "Board independence, firm performance and ownership concentration: Evidence from Chile," Journal of Business Research, Elsevier, vol. 61(6), pages 615-622, June.
    47. Liu, Yu & Wei, Zuobao & Xie, Feixue, 2014. "Do women directors improve firm performance in China?," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 169-184.
    48. Canan C. Mutlu & Marc Van Essen & Mike W. Peng & Sabrina F. Saleh & Patricio Duran, 2018. "Corporate Governance in China: A Meta‐Analysis," Journal of Management Studies, Wiley Blackwell, vol. 55(6), pages 943-979, September.
    49. Mihaela Ionascu & Ion Ionascu & Marian Sacarin & Mihaela Minu, 2018. "Women on Boards and Financial Performance: Evidence from a European Emerging Market," Sustainability, MDPI, vol. 10(5), pages 1-18, May.
    50. Carl J. Kock & Byung S. Min, 2016. "Legal Origins, Corporate Governance, and Environmental Outcomes," Journal of Business Ethics, Springer, vol. 138(3), pages 507-524, October.
    51. Marc Essen & J. Oosterhout & Michael Carney, 2012. "Corporate boards and the performance of Asian firms: A meta-analysis," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 873-905, December.
    52. Choi, Jongmoo Jay & Park, Sae Woon & Yoo, Sean Sehyun, 2007. "The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 941-962, December.
    53. Wagner, Dominik & Block, Joern H. & Miller, Danny & Schwens, Christian & Xi, Guoqian, 2015. "A meta-analysis of the financial performance of family firms: Another attempt," Journal of Family Business Strategy, Elsevier, vol. 6(1), pages 3-13.
    54. Grant Kirkpatrick, 2009. "The corporate governance lessons from the financial crisis," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2009(1), pages 61-87.
    55. Renée Birgit Adams, 2012. "Governance and the Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 12(1), pages 7-38, March.
    56. Pablo De Andres & Valentin Azofra & Felix Lopez, 2005. "Corporate Boards in OECD Countries: size, composition, functioning and effectiveness," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 197-210, March.
    57. Balaji S. Chakravarthy, 1986. "Measuring strategic performance," Strategic Management Journal, Wiley Blackwell, vol. 7(5), pages 437-458, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hend Alregab, 2022. "The Role of Environmental, Social, and Governance Performance on Attracting Foreign Ownership: Evidence from Saudi Arabia," Sustainability, MDPI, vol. 14(23), pages 1-15, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, July.
    2. Shkendije Himaj, 2014. "Corporate Governance in Banks and its Impact on Risk and Performance: Review of Literature on the Selected Governance Mechanisms," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 3(3), pages 53-85.
    3. Uribe-Bohorquez, María-Victoria & Martínez-Ferrero, Jennifer & García-Sánchez, Isabel-María, 2018. "Board independence and firm performance: The moderating effect of institutional context," Journal of Business Research, Elsevier, vol. 88(C), pages 28-43.
    4. Nguyen, Thi Tuyet Mai, 2017. "An examination of independent directors in Vietnam," OSF Preprints ay6dv, Center for Open Science.
    5. Aziz Jaafar & Lynn Hodgkinson & Mao-Feng Kao, 2019. "Ownership Structure, Board of Directors and Firm Performance: Evidence from Taiwan," Working Papers 19011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    6. Eduardo Ortas & Igor Álvarez & Eugenio Zubeltzu, 2017. "Firms’ Board Independence and Corporate Social Performance: A Meta-Analysis," Sustainability, MDPI, vol. 9(6), pages 1-26, June.
    7. Chenglong Zheng & Roy Kouwenberg, 2019. "A Bibliometric Review of Global Research on Corporate Governance and Board Attributes," Sustainability, MDPI, vol. 11(12), pages 1-25, June.
    8. Ben Ali Chiraz & Cédric Lesage, 2010. "Ownership concentration and audit fees: do auditors matter most when investors are protected least?," Post-Print hal-00476923, HAL.
    9. Eugenio Zubeltzu‐Jaka & Igor Álvarez‐Etxeberria & Eduardo Ortas, 2020. "The effect of the size of the board of directors on corporate social performance: A meta‐analytic approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1361-1374, May.
    10. Badar Alshabibi, 2021. "The Role of Institutional Investors in Improving Board of Director Attributes around the World," JRFM, MDPI, vol. 14(4), pages 1-33, April.
    11. Oded Cohen, 2020. "Measuring Corporate Governance Quality in Concentrated-Ownership Firms," Bank of Israel Working Papers 2020.06, Bank of Israel.
    12. Franco Ernesto Rubino & Paolo Tenuta & Domenico Rocco Cambrea, 2017. "Board characteristics effects on performance in family and non-family business: a multi-theoretical approach," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 623-658, September.
    13. Chaur-Shiuh Young & Liu-Ching Tsai & Pei-Gin Hsieh, 2008. "Voluntary Appointment of Independent Directors in Taiwan: Motives and Consequences," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1103-1137.
    14. Salim Chahine & Assem Safieddine, 2011. "Is corporate governance different for the Lebanese banking system?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(2), pages 207-226, May.
    15. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, October.
    16. Ahmed Bouteska, 2020. "Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone," Journal of Asset Management, Palgrave Macmillan, vol. 21(6), pages 535-548, October.
    17. Bhatia, Madhur & Gulati, Rachita, 2021. "Board governance and bank performance: A meta- analysis," Research in International Business and Finance, Elsevier, vol. 58(C).
    18. Sheeba Kapil & Rakesh K Mishra, 2019. "Corporate Governance structure and firm performance in Indian context: A Structural Equation Modelling Approach," Working Papers 1937, Indian Institute of Foreign Trade.
    19. Chiu-Hui Wu, 2021. "On the Moderating Effects of Country Governance on the Relationships between Corporate Governance and Firm Performance," JRFM, MDPI, vol. 14(3), pages 1-13, March.
    20. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2018. "Bank governance and performance: a survey of the literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(3), pages 236-256, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:11:y:2019:i:24:p:7121-:d:297110. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.