Abstract
This paper analyses the structure of boards of directors and its impact on business performance, which is approximated by economic profitability and the Tobin’s Q ratio. We focus on three basic aspects of boards that have been reviewed in the recent reform of the Good Governance Code: the size of boards, their independence and their diversity. For the study of diversity, we use an index that integrates not only the gender of board members, but also their age and nationality, since these are factors that can influence the knowledge, experience and skills of the directors. The results confirm a high degree of compliance with the recommendations of the Good Governance Code, and suggest that the performance of the advisory and monitoring functions are factors that determine the composition of boards. With respect to the performance of the company, we note that there is a negative and significant relationship with the independence of boards. However, the results are sensitive to the performance measure employed.
Highlights
One issue that has attracted interest among researchers is the separation between management and ownership, which gives rise to the well-known agency problem
We focus on three basic aspects of boards that have been reviewed in the recent reform of the Good Governance Code: the size of boards, their independence and their diversity
With the intention of comparing the results with those obtained in previous studies, we focus on how the need for guidance and monitoring affects three aspects of the board: size, independence and diversity (Boone et al, 2007; Borlea et al, 2017; Cavaco, Crifo, Rebérioux, & Roudaut, 2017; Farag & Mallin 2017; Guest, 2008; Linck et al, 2008)
Summary
One issue that has attracted interest among researchers is the separation between management and ownership, which gives rise to the well-known agency problem. As the board of directors is the key element of corporate governance, it is clear that its composition must be responsive to the basic functions that are assigned to it: supervising and monitoring, avoiding opportunistic behaviour on the part of executives, and providing advice to decision makers to improve the management of the business These aspects have been looked at by researchers who have studied whether the determining factors in the composition of boards are related to the basic functions assigned and whether this composition has an impact on the management of the business
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