Do the Board of Directors Composition and the Board Interlocking Influence on Performance?

Delci Grapégia Dal Vesco,Ilse Maria Beuren

doi:10.1590/1807-7692bar2016160007

Abstract

This study analyzes the influence of composition of the Board of Directors and their social relations (board interlocking) on performance of Brazilian companies. A descriptive study based on documentary research was conducted with a total of 1,163 companies' observations and 18,119 standardized observations regarding directors. Simultaneous equations were applied to the data analysis. The survey results showed that, regarding the influence of composition of the Board of Directors on the performance of the companies, among variables used to identify its characteristics, that some showed endogeneity. Among the characteristics of the Board of Directors, the duality of the board was exogenous when comparing market performance (Tobin's Q) and the outsiders were also exogenous for internal performance (Return on Equity). Thus, the duality of the board is more influenced by the specificities of each company than by the market value of the companies. The characteristic outsiders are more influenced by the institutional environment than by the ROE. The practice of board interlocking proved to be insignificant in relation to the market value, indicating natural selection. Therefore, it is not possible to infer that the board interlocking can increase the dependency of the management, compromising the role of monitoring. Also, it is not possible to state that better positioned and central companies in the corporate relationships network show better performance.

Highlights

Studies on the Board of Directors as a mechanism of control and its effects on performance, from the perspective of the Agency Theory, have been conducted from Fama (1980) and Fama and Jensen (1983a) on
The question that guides this study is: What is the influence of the composition of the Board of Directors and the social relations on the performance of Brazilian companies? the objective of this study is to verify the influence of the composition of the Board of Directors and the social relations on the performance of Brazilian companies
The results indicate that the size of the Board of Directors is negatively associated with the variability of stock returns, Return on Assets (ROA) and Tobin’s Q

Summary

Introduction

Studies on the Board of Directors as a mechanism of control and its effects on performance, from the perspective of the Agency Theory, have been conducted from Fama (1980) and Fama and Jensen (1983a) on. From the perspective of the Agency Theory, the board interlocking contributes to the coordination and management of conflicts between principal and agent, with intention of improving performance (Caswell, 1984). Better internal mechanisms of control and interlock sharing in the companies result in better performance. This logic is not always perfect, the effects of the social relationships may have a negative effect on performance (Labianca & Brass, 2006)

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