Do corporate boards affect firm performance? New evidence from the financial crisis

Discussion Papers
Do corporate boards affect firm performance? New evidence from the financial crisis
11/2012
Author(s):
Bill Francis – Iftekhar Hasan – Qiang Wu
2012. 55 pages.
Publisher:
Bank of Finland
ISBN:
978-952-462-796-2
(Web publication)
ISSN:
1456-6184
(Web publication)

Published in: Review of Financial Economics, Volume 21, Issue 2, April 2012: 39-52

​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.


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