Corporate Boards, Ownership Structure and Firm Performance in an Environment of Severe Political and Economic Crisis

Abstract

This study examines the relationship between board and ownership structures and firm performance in an environment of severe political and economic crisis using panel data from the Zimbabwe Stock Exchange for the period 2000–2005. The period is split into the pre‐presidential election period (2000–2002) (a relatively stable political and economic period) and the post‐presidential election period (2003–2005) (a hostile political and economic period) to capture the differences in the political and economic landscape. It is found that board size, ownership concentration and executive directors’ share ownership increased, while the proportion of non‐executive directors fell in the post‐presidential election period. Employing a system generalized method of moments approach, the study finds that performance is positively related to board size and ownership concentration in the post‐ (but not in the pre‐) presidential election period. The results also show that performance is negatively related to executive directors’ share ownership in the post‐presidential election period, but positively related in the pre‐presidential election period. The relationship between performance and the proportion of non‐executive directors is negative and significant in both periods. These findings support the notion that the effects of board and ownership structures depend on the nature of the firm's environment, and therefore have important implications for policy‐makers.