Board structure and firm performance : evidence from India's top companies

Jackling, Beverley and Johl, Shireenjit 2009, Board structure and firm performance : evidence from India's top companies, Corporate governance : an international review, vol. 17, no. 4, pp. 492-509.

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Title Board structure and firm performance : evidence from India's top companies
Author(s) Jackling, Beverley
Johl, Shireenjit
Journal name Corporate governance : an international review
Volume number 17
Issue number 4
Start page 492
End page 509
Publisher Wiley-Blackwell Publishing Ltd.
Place of publication Bognor Regis, England
Publication date 2009
ISSN 0964-8410
1467-8683
Keyword(s) corporate governance
board of directors
firm performance
clause 49
India
Summary Manuscript Type: Empirical

Research Question/Issue: This paper investigates the relationship between internal governance structures and financial performance of Indian companies. The effectiveness of boards of directors, including board composition, board size, and aspects of board leadership including duality and board busyness are addressed in the Indian context using two theories of corporate governance: agency theory and resource dependency theory.

Research Findings/Insights: The study used a sample of top Indian companies taking into account the endogeneity of the relationships among corporate governance, corporate performance, and corporate capital structure. The study provides some support for aspects of agency theory as a greater proportion of outside directors on boards were associated with improved firm performance. The notion of separating leadership roles in a manner consistent with agency theory was not supported. For instance, the notion that powerful CEOs (duality role, CEO being the promoter, and CEO being the only board manager) have a detrimental effect on performance was not supported. There was some support for resource dependency theory. The findings suggest that larger board size has a positive impact on performance thus supporting the view that greater exposure to the external environment improves access to various resources and thus positively impacts on performance. The study however failed to support the resource dependency theory in terms of the association between frequency of board meetings and performance. Similarly the results showed that outside directors with multiple appointments appeared to have a negative effect on performance, suggesting that "busyness" did not add value in terms of networks and enhancement of resource accessibility.

Theoretical/Academic Implications:
The two theories of corporate governance, namely agency and resource dependence theory, were each only partially supported, by the findings of this study. The findings add further to the view that no single theory explains the nexus between corporate governance and performance.

Practitioner/Policy Implications:
This study demonstrates that corporate governance measures utilized in developed economies related to boards of directors have some synergies and relevance to emerging economies, such as India. However, the nature of business structures in India, for example the large number of family businesses, may limit the generalizability of the findings and signals the need for further investigation of these businesses. The evidence related to multiple appointments of directors suggests that there may be support for restricting the number of directorships held by any one individual in emerging economies, given that the "busyness" of directors was negatively associated with firm performance.
Language eng
Field of Research 150303 Corporate Governance and Stakeholder Engagement
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2009, Blackwell Publishing Ltd.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30022719

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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