Board Composition, Ownership Structure and Firm Value: Empirical Evidence from Switzerland

Abstract

Various corporate law and governance theories inform us that board independence, management ownership and blockholder ownership are important elements of the overall corporate governance system. The empirical evidence on the effectiveness of these elements is, however, mixed at best. Moreover, the results and conclusions of prior theoretical and empirical research are typically country-specific and often not universally applicable. The empirical analysis conducted in this article is based on a panel data set consisting of 43 large public companies over a time frame of 6 years in the context of the small and open economy of Switzerland. The results of this analysis suggest that a larger fraction of independent directors on the company board decreases firm value and that a combined leadership structure may also increase value. Similarly, the results suggest that the presence of a controlling shareholder decreases firm value and that the presence of institutional investors as significant shareholders may also decrease value. The new evidence of this country study casts doubt on several generally accepted good corporate governance principles and highlights the need for a reconsideration of public policy towards board governance and blockholder governance. This article examines and discusses the most relevant policy implications based on the new evidence.