An Empirical Analysis of Relationship Between Variables of Board Composition and Corporate Performance of Indian Firms
Keywords:
board size, independent directors, executive directors, professionally managed, market capitalizationAbstract
This paper examines the relationship between the board composition and market as well as accounting-based indicators of corporate performance. The sample for the study consisted of 153 BSE listed firms, having a market capitalization of 100000 million rupees or more for the year 2017. Board size, presence of independent directors and executive directors are treated as independent variables, whereas return on equity (ROE), return on assets (ROA), return on capital employed (ROCE) and growth in the market capitalization of a company are treated as dependent variables to evaluate the corporate performance. The results portray that performance of the firm is independent of the presence of executive directors on the board. On the other hand, significant impact of independent directors was observed on corporate performance, when measured through return on equity (ROE) and return on assets (ROA). Board size was found to be significant while determining performance through return on assets (ROA). Independent variables did not influence the compound annual growth rate of market capitalization of sample firms, but board size had a significant impact only in the determination of market value of professionally managed firms. The correlation analysis of the predictors used for the study revealed that board size had a moderate and significant correlation with board independence and least significant correlation with executive directors. This study aims to contribute to the extant literature regarding the impact of corporate governance variables on the performance of listed Indian firms.
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