Abstract
This paper studies the impact of independent board members on the financial performance of companies listed on the Bucharest Stock Exchange during the period 2016–2020. Different characteristics of the board of directors have been examined extensively in the literature and board independence was identified as one of the most effective corporate governance tools. In this context, the present study contributes to the relevant literature by examining recent data for Romania and investigating alternative performance indicators such as return on assets (ROA), return on equity (ROE) and Tobin’s Q. The correlation analysis, scatter plots, and regression results document that a higher share of the independent board members was associated with higher returns on equity ratio. Specifically, a 10% rise in the share of independent members was associated with an approximately 0.9%-point increase in ROE.
Highlights
Corporate governance has gained increasing importance in the management of companies in recent decades (Solomon 2020)
This paper examined the impact of independent board members on the financial performance of companies listed on the Bucharest Stock Exchange
Empirical studies show that the presence of independent members is associated with better financial performance
Summary
Corporate governance has gained increasing importance in the management of companies in recent decades (Solomon 2020). The authors discussed the finding from the literature that in less regulated markets in some countries, dominant shareholders could divert funds to themselves In this context, Dahya et al (2008) postulated that having independent board members would balance this diversion and increase firm value. The purpose of the present paper is to document the relationship between board independence and firm performance It contributes to the literature by examining the influence of independent non-executive board members on the financial performance of companies on the Bucharest Stock Exchange during the period 2016–2020. Stock Exchange, such as Vintilă and Gherghina (2013), Vintilă et al (2015), and Borlea et al (2017), which are examined in more detail Compared to these studies, the present paper uses a more recent data set from the 2016–2020 period and utilizes alternative performance measures.
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