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The effect of environmental jolts on board governance practices and its impact on firm value

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  • Eloisa Perez-de Toledo

    (MacEwan University)

  • Maria Pilar Giraldez-Puig
  • Jose Manuel Hurtado-Gonzalez

Abstract

Environmental jolts are temporary disruptions that cause a hostile transformation in the level of resources available in a given system. Using the 2008 financial crisis as a moderator factor in the relationship between board structure and firm value, we assess whether there are any changes in board governance practices as a result of firms adaptation to the changes caused by the crisis. Our results show that in this new reality where resources are scarce and growth opportunities are scant a new board configuration is required. During the crisis period, the relationship between board size and firm performance is such that larger boards are more capable of responding to a crisis, the presence of independent directors prevents firms from increasing financial leverage and managers get entrenched at higher levels of board ownership. The study has useful implications for practitioners as it compares the impact of the adoption of best board governance practices on firm value in times of munificence and during environmental jolts.

Suggested Citation

  • Eloisa Perez-de Toledo & Maria Pilar Giraldez-Puig & Jose Manuel Hurtado-Gonzalez, 2016. "The effect of environmental jolts on board governance practices and its impact on firm value," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 13(1), pages 75-95, February.
    • Handle: RePEc:pal:ijodag:v:13:y:2016:i:1:d:10.1057_jdg.2015.6
    DOI: 10.1057/jdg.2015.6
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