Supervisory Board Composition and Firm Financial Performance: A Case of Companies Listed on the Warsaw Stock Exchange

Abstract

Purpose: This paper investigates the relationship between the internal governance structure and financial performance of Polish companies. Ensuring diversity of corporate boards has been on the agenda of various regulators on a national and international level as it is generally expected corporate boards that are more diverse will be more competent and more effective monitoring managerial actions, and therefore positively impact company performance. Methodology: This paper uses a sample of companies listed on the Warsaw Stock Exchange and examines the two main compositional features of company supervisory boards (independence and experience) and their practices by companies. We also investigate the effect of diversity on company performance. As our empirical methodology, we use linear regression analysis. Findings: Our findings support the proposal that diversity matters, especially in terms of the presence of experienced members on supervisory boards, and that such diversity positively affects financial results. In addition to the main finding, the results of the study indicate also the importance of the ownership structure. Family firms and companies with a higher level of gearing are more likely to perform less effectively. Originality: To date, research on the association between supervisory board diversity and financial performance in either the Polish or Central and Eastern European capital markets has been limited. The paper also points to the importance of having experienced members on a company’s supervisory board. Independent members on supervisory boards do not seem to have a similar association.