Opening The Black Box Between Board Characteristics And Firm Performance: A Meta-Analysis Study

Abstract

Decades of corporate governance research have explored the relationship between board characteristics and firm financial performance; yet, empirical findings are either weak or contradictory. To address this, our study investigates how the board of directors in general and board characteristics in particular, influence firm financial performance by examining the mediating mechanisms in this relationship. Using meta-analytic structural equation modeling (MASEM) and drawing from 139 primary studies (N=45,889), this study theorizes a process model to explain the relationship between board characteristics and firm financial performance. We find no significant direct relationship between board characteristics and firm performance. Instead, we find this relationship to be serially mediated by the enactment of board roles (monitoring and resource provision) and the alignment of managerial risk profiles with shareholder interests. These findings help reconcile the age-old debate between agency and resource dependence theorists, by examining the comparative and complementary performance implications of board monitoring and resource provision.