Board Characteristics and Firm Performance

Abstract

Based on agency theory, the importance of Corporate Governance (CG) is to reduce agency conflicts between those who control and those who own the residual claims in a firm. In other words, CG as a mechanism helps to align management's goals with those of the stakeholders that are to increase firm performance. Since, the value creation of CG can be measured through the firm performance; the aim of this study is to answer this question: "Is there any relationship between CG and firm performance?" Therefore, the four board characteristics that are of interest in this study are board independency, CEO duality, ownership structure, and board size. Based on a randomly selected sample of companies listed on Bursa Malaysia and applying the linear multiple regression as the underlying statistical tests, it is found that CEO duality has a negative relationship with firm performance (Return on Equity and Return on Asset) but there is no significant relationship between board independency, board size and ownership structure as independent variables and firm performance as dependent variable.

Keywords: corporate governance, board of directors, firm performance

JEL Classification: G34, M41