An Empirical Study on the Relationship between Corporate Performance and the Board’s Effectiveness and Independence
Date Issued
2006
Date
2006
Author(s)
Tien, Ya-Tzu
DOI
en-US
Abstract
Board of directors has always been the issue when talking about corporate governance. Previous literature emphasized on the relationship between single characteristic of the board and corporate performance. Our research focuses on the board effectiveness and independence. Whether board performs more effectively and directors are more independent have the association with the corporate performance.
The samples are the big 20 corporations in the U.S. and Europe from the Fortune magazine totaling 40 observations. In distinguishing the board effectiveness and independence, we use the minimum corporate governance standards released by ISS. In the category of the board effectiveness, we get four factors while six factors in the category of the board independence. We search the proxy statement and corporation website to see whether the firm satisfies our chosen corporate standards and summarized the factors into two characteristics we would like to analyze.
Our empirical result shows that the board effectiveness is significantly related to the corporate performance in terms of return on equity, return on assets, and sales growth. However, in the perspective of independence, only sales growth is significantly associated with the board independence. Two of the independent factors are “no duality of CEO and chairman”, and “more than 50% of the directors that are outside independent directors”. Some prior research points out that when the firm has the duality of CEO and chairman and more outside and independent directors, the corporation will perform better. That may be the reason that our result does not reach our expectation, which the board independence is significantly related to the corporate performance.
Subjects
公司治理
執行效果
獨立性
corporate governance
board of directors
effectiveness
independence
Type
other
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