7. Impact of Firm Performance on Board Characteristics: Empirical Evidence from India

Abstract

This study attempts to examine the impact of prior and current firm performance on board composition as it is the least explored issue in the corporate governance area. For this purpose, our analysis covers a large sample of the Indian manufacturing firms for the period 2001–2010. We utilize a range of measures of firm performance such as return on assets, return on equity, net profit margin, adjusted Tobin’s q and stock returns in the analysis. We also use a range of alternative measures of board characteristics like board size, independence and meetings in the estimation process. The results of the study show that firm performance has a negative impact on board characteristics. Findings of the study also indicate that the larger board, outside membership and more meetings are considered as expensive affairs in the firm. Our findings in this study are expected to generate further debate on the related issue and sensitize the scholars to reason further research in this area especially in context of developing countries.