BOARD CHARACTERISTICS AND FIRM PERFORMANCE: EMPIRICAL EVIDENCE FROM TURKEY

Abstract

Due to various corporate scandals and failures, there has been a renewed interest on the role of boards in the performance of firms. This thesis examines the relationship between the key board characteristics and firm performance. Unlike most studies on boards which predominantly use only financial variables affecting governance, I take a different approach by combining them with non-financial variables. This combined set of variables is used for theoretical and empirical modelling. Based on the extant literature, I develop a conceptual framework and a set of hypotheses to examine the relationship between board characteristics and firm performance. Board characteristics considered in this research include board size, director ownership, CEO duality, gender diversity, educational qualification of board members and number of board meetings. Additionally, I use board size as a moderating variable to examine how the effect of other board characteristics is contingent on board size. Firm performance is measured by return on assets. I test my hypotheses on a longitudinal sample of 156 firms over a four year period from 2004 to 2007. My sample includes all firms listed on New Zealand stock exchange as on November 2007. Empirical analysis is undertaken using Generalised Least Squares analyses. The findings of the study show that board characteristics such as board size, CEO duality and gender diversity were positively related with firm performance, where as director ownership, board meetings and the number of board members with PhD level education was found to be negatively related. Board size was found to be moderating some of these relationships, indicating the critical role being played by board size in the design and role of corporate boards. The findings also provide partial evidence to different governance theories, further indicating the need for theoretical pluralism to gain insights into boards’ functioning. The study contributes to the understanding of board-performance link by examining both the traditional variables such as board size, CEO duality, number of board meetings as well as other organisational attributes such as gender diversity and competence variables represented by women and PhD holders, respectively. The theoretical framework and the findings of my thesis are expected to stimulate scholars for further research to identify the contingency conditions upon which the board characteristics and firm performance may be dependent.