Research Discussion Papers, Bank of Finland
No 11/2012:
Do corporate boards affect firm performance? New evidence from the financial crisis
Bill Francis, Iftekhar Hasan ()
and Qiang Wu
Abstract: This study uses the current financial crisis as a
quasi-experiment to examine whether and to what extent corporate boards
affect the performance of firms. Using cumulative stock returns over the
crisis to measure of firm performance, we find that board independence, as
traditionally defined, does not significantly affect firm performance.
However, when we re-define independent directors as outside directors who
are less connected with current CEOs, a measure we call true independence,
there is a positive and significant relationship between this measure and
firm performance. Second, outside financial experts are important for firm
performance. Third, board meeting frequencies, director attendance
behaviors, and director age also affect firm performance during the crisis.
Overall, our results suggest that firm performance during a crisis is a
function of firm-level differences in corporate boards.
Keywords: financial crisis; boards of directors; firm performance; true independence; (follow links to similar papers)
JEL-Codes: G01; G30; G34; (follow links to similar papers)
55 pages, April 12, 2012
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