The impact of board capital and board characteristics on firm performance

Johnny Jermias, Lindawati Gani

Research output: Contribution to journalArticlepeer-review

42 Citations (Scopus)

Abstract

The purpose of this study is to investigate the effects of board capital on the relationship between CEO duality, board dependence, managerial share ownership and performance. We argue that board capital (the ability of board members to perform manager-monitoring activities and to provide advice and counsel to management) varies across board members. Highly qualified board members will be better at monitoring management and constitute a more valuable resource for firms. Based on a sample of U.S. companies listed in the Compustat S&P 500 and using both resource dependence and agency theories, we predict and find that CEO duality and board dependence negatively affect performance and that board capital mitigates the negative effects. We also predict and find that managerial share ownership positively affects performance and that board capital strengthens this positive relationship. The results are consistent with the view that firms benefit from board capital in terms of outside directors' ability to monitor managers and provide advice and counsel to managers.

Original languageEnglish
Pages (from-to)135-153
Number of pages19
JournalBritish Accounting Review
Volume46
Issue number2
DOIs
Publication statusPublished - 1 Jan 2014

Keywords

  • Board capital
  • Board dependence
  • CEO duality
  • Managerial incentives
  • Resource dependence theory

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