Interdependence between board and firm performance: Evidence from the stock exchange of Tunisia

Abstract

Recent empirical researches show a positive relationship between the quality of governance and firm performance. The objective of this research is to study the reverse causality between different characteristics of board and performance. Instead looking at one simple mechanism separately, we use a system of simultaneous equations in order to detect a possible endogeneity. In a panel of 36 traded firms at Tunis Stock Exchange between 2004 and 2006, our results show a significant interdependence between board size, board independence and firm performance. In addition, the 3SLS estimator allows us to conclude that board influences performance. Also, our results show that firms change their board structure in response to firm performance.