Outside Directors, Board Interlocks and Firm Performance: Empirical Evidence from Colombian Business Groups

48 Pages Posted: 3 Oct 2010 Last revised: 28 May 2011

See all articles by Luis H. Gutierrez

Luis H. Gutierrez

Universidad del Rosario

Carlos Pombo

Universidad de los Andes, Colombia - School of Management

Date Written: September 30, 2010

Abstract

We investigate the relation of board structure through the appointments of outside directors and the role of busy directors on firm return on assets within an environment of no regulation for privately held firms and voluntary adoption of corporate best practices for security issuers with family controlling blockholders. This study relies on a sample of an average of 335 firms per year for the 1996-2006 period, where 244 are private firms and 285 are affiliated to one of the seven largest non-financial business groups in the country. Five of these groups were, in 2006, still family-controlled. We find a positive relation between both the ratio of outside directors, and the degree of board interlocks, with firm return-on-assets. Outside busy directors turned out to be key drivers of improved firm performance. Appointments of outsiders are endogenous to firm ownership structure. Blockholder activism and contestability becomes an internal mechanism that improves director monitoring and ex-post firm valuation.

Keywords: Outside Directors, Board Interlocks, Busy Directors, Corporate Governance, Firm Performance, Control Contestability, Colombian Corporations

JEL Classification: G32, L14, L22

Suggested Citation

Gutierrez, Luis H. and Pombo, Carlos, Outside Directors, Board Interlocks and Firm Performance: Empirical Evidence from Colombian Business Groups (September 30, 2010). Journal of Economics and Business, Vol. 63, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1685953

Luis H. Gutierrez

Universidad del Rosario ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia
(571) 2970200 ext 676 (Phone)
(571) 3445763 (Fax)

HOME PAGE: http://www.urosario.edu.co/FASE3/profesores/doce_eco_luis_gutierrez.htm

Carlos Pombo (Contact Author)

Universidad de los Andes, Colombia - School of Management ( email )

Carrera Primera # 18A-12
Bogotá
Colombia
571-3394949 (Phone)

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