Board Composition, Ownership Structure, and Firm Value: Empirical Evidence from Switzerland

Abstract

The purpose of my research is to contribute to the existing corporate governance literature on board composition and ownership structure. Various theories suggest that board independence and the level of inside and outside ownership are important corporate governance elements. The empirical evidence on the effectiveness of these elements is, however, mixed at best. Moreover, the results and conclusions of prior theoretical and empirical research are country-specific and often not universally valid. Against this background, I conduct a panel data analysis for 43 large public companies over a time frame of six years in the Swiss context. My results suggest that a larger fraction of independent directors on the board and the presence of a controlling shareholder do not increase, but decrease firm value. Furthermore, I find some evidence that separated leadership roles and the presence of institutional investors do not increase, but decrease firm value. Finally, I find that while higher non-executive director shareholdings tend to increase firm value, higher executive director and officer shareholdings can increase or decrease firm value. My overall conclusion is that public policy towards certain corporate governance mechanisms has to be reconsidered. This not only applies to the definition and threshold of independent directors, but also to separated leadership roles. In addition, companies with a controlling shareholder might and in my view should be subject to stricter rules and regulations.