Board Composition, Grey Directors and Corporate Failure in the UK
48 Pages Posted: 8 Jan 2010 Last revised: 6 Aug 2014
Date Written: December 1, 2013
Abstract
This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs’ personal or economic ties with the firm and its management on firm performance.We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have over emphasised the monitoring function of independent directors and underestimated the benefits of NEDs’ affiliations with the firm and its management.
Keywords: Corporate Governance, Board Composition, Grey Director, Corporate Failure
JEL Classification: G30, G33, G34, G38
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Audit Committee, Board of Director Characteristics, and Earnings Management
By April Klein
-
Audit Committee, Board of Director Characteristics, and Earnings Management
By April Klein
-
Audit Committee Composition and Auditor Reporting
By Joseph V. Carcello and Terry L. Neal
-
Corporate Governance and Accounting Scandals
By Anup Agrawal and Sahiba Chadha
-
Audit Committee Characteristics and Auditor Reporting
By Joseph V. Carcello and Terry L. Neal
-
Earnings Management and Corporate Governance: The Roles of the Board and the Audit Committee
By Biao Xie, Wallace N. Davidson, ...
-
Restoring Trust after Fraud: Does Corporate Governance Matter?
-
Board Characteristics, Accounting Report Integrity, and the Cost of Debt
By Ronald C. Anderson, Sattar Mansi, ...
-
Does the Market Value Financial Expertise on Audit Committees of Boards of Directors?
By Mark L. Defond, Rebecca N. Hann, ...