Board Meetings, Committee Structure, and Firm Performance

Abstract

In this study, we study the relationship between the level of board monitoring activity and firm value for a broad panel of firms over a six-year period from 1999 to 2005. We develop and examine several proxies for the level and intensity of board monitoring based on board activity and committee structure. Our first proxy is the number of annual board meetings and our second proxy relates to the number of director-days devoted to monitoring. We use pooled and fixed effect structural models to examine the relationship between firm value and board monitoring as captured by these proxies. Other proxies we use are based on the committee structure reflecting the increased political and regulatory focus on the role of these committees. Specifically, we use the shift to a fully independent Audit and Compensation Committee and the initiation of a Nominating Committee to proxy for an increase in monitoring activity. We show that prior performance, firm characteristics, and governance characteristics, appear to be a important determinants of board monitoring activity as captured by our proxies. We also show that the efforts of a board are driven by corporate events, such as an acquisition or restatements of financial statements. Our results indicate that the increased oversight and monitoring by the board has led to some increase in firm value.