Abstract
This paper seeks to provide a better understanding of what makes boards effective. We analyse the relationships between board demography and company performance and between working structures and board tasks in small and medium-sized enterprises (SMEs). We test our hypotheses on a sample of 307 Spanish SMEs. The main empirical result is the negative impact that the proportion of outside directors and the board size have on firm performance. We also find a negative impact of outsiders’ presence and a positive impact of director tenure on the board’s service role. Our analysis of the role of board control highlights the negative relationship between this variable and CEO tenure.
Highlights
The debate about the efficiency of corporate governance mechanisms has focused on corporate boards of directors (De Andrés, Azofra & Lopez, 2005), on the relationship between board demographic characteristics and company performance (Minichilli, Zattoni & Zona, 2009)
Some authors find an inverse relationship between firm value and board size (Yermack, 1996). Taking into account these arguments and following De Andrés & Rodríguez (2009) and García-Ramos & García Olalla (2011a), we propose that the effect of board size on firm performance can be seen as a trade-off between benefits and drawbacks
This study analyses the direct links between board demographic variables and firm performance, and empirically tests the impact of the boardsworking structures and processes on board task performance of small and medium-sized enterprises (SMEs)
Summary
The debate about the efficiency of corporate governance mechanisms has focused on corporate boards of directors (De Andrés, Azofra & Lopez, 2005), on the relationship between board demographic characteristics and company performance (Minichilli, Zattoni & Zona, 2009). Related empirical evidence is ambiguous about the relationship between board demography and firm performance (Minichilli, Zattoni & Zona, 2009). Many researches argue that the effective functioning of boards can have effects on the firm performance (Zahara & Pearrce 1989). Some boards do not perform well, due, for example, to poor structures or processes, inappropriate composition, or CEO domination (Zahra & Pearce 1989; Baixauli-Soler & Sanchez-Marin, 2015)
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