Journal Press India®

Impact of Board Structure on Financial Performance: A Study of CNX Nifty Listed Companies in India

Vol 9 , Issue 1 , January - June 2022 | Pages: 20-38 | Research Paper  

 
Article has been added to the cart.View Cart (0)
https://doi.org/10.17492/jpi.manthan.v9i1.912202


Author Details ( * ) denotes Corresponding author

1. * Mahesh Bendigeri, Associate Professor, Academics, Global Business School, Hubli, Karnataka, India (maheshbendigeri@gmail.com)
2. R L Hyderabad, Professor, Commerce, Karnatak University Dharwad, Dharwad, Karnataka, India (drrajulh@yahoo.com)

The present study examines the impact of board structure and composition on the financial performance of CNX Nifty-listed companies in India. The main objective of this study is to test whether board structure and composition influence firm performance. Board Structure, Board Size, Board Ownership, and CEO Duality are considered as independent variables, and Return on Asset is taken as Dependent variable. Using the data from 2010 to 2017 covering a sample of 45 CNX Nifty Companies and applying Multivariate Regression Technique, the study finds that Board Composition, Board Ownership has a positive and significant relationship with Return on Assets. Board Size is positive but statistically insignificant with Return on Assets. CEO Duality is negative but has insignificant relation with Return on Assets. From this study, we conclude that among the board structure attributes board composition represents the presence of independent directors, and Board Ownership represents the proportion of equity held by promoters that play important role in influencing firm performance. Whereas the other attributes like board size and CEO Duality do not influence the firm performance. 

Keywords

Board Structure, Board Composition, Financial Performance, CEO Duality, Board Size

  1. Adams, R., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. Review of Financial Studies, 18(4), 1403-1432.
  2. Al-Janadi, Y. (2021). Ownership structure and firm performance in the middle east: A meta-analysis. Journal of Risk and Financial Management, 14(12), 1-23.
  3. Alqatan, A., Chbib, I., & Hussainey, K. (2019). How does board structure impact firm performance in the UK? Corporate Board: Role, Duties and Composition, 15(2), 18-27. Retrieved from https://doi.org/10.22495/cbv15i2art2.
  4. Awan, S. H. (2012). Effect of board composition on firm’s performance: A case of Pakistani listed companies. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 853-863.
  5. Beiner, S., Drobetz, W., Schmid, F., & Zimmermann, H. (2004). Is board size an independent corporate governance mechanism? Kyklos, 57(3), 327-356.
  6. Berkman, H., Cole, R. A., Lee, A., & Veeraraghavan, M. (2005). The effect of board composition and ownership structure on firm performance: Evidence from India. The 2005 China International Conference in Finance held July 5-7, 2005 in Kunming, PRC.
  7. Bhagat, S. & Black, B. (1999). The uncertain relationship between board composition and firm performance. Business Lawyer, 54(3), 921-963.
  8. Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and Chairman of the Board. Journal of Corporate Finance, 3(3), 189-220.
  9. Callen, J. L., Klein, A., & Tinkelman, D. (2003). Board composition, committees, and organizational efficiency: The case of non-profits. Nonprofit and Voluntary Sector Quarterly, 32(4), 493-520.
  10. Cannella, A. & Lubtakin, M. (1993). Succession as a sociopolitical process: Internal impediments to outsider succession. Academy of Management Journal, 36(4), 763-793.
  11. Chbib, I. & Page, M. (2019). Board composition and firm performance: The case of FTSE all shares. The IUP Journal of Corporate Governance, XIX(1), 7-27. Retrieved from https://ssrn.com/abstract=3797521.
  12. Cheng, S., Evans III, J. H., & Nagarajan, N. (2007). Board size and firm performance: The moderating effects of the market for corporate control. Review of Quantitative Finance and Accounting, Springer, 31(2), 121-145.
  13. Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329-356.
  14. Daily, C., & Dalton, D. (1997). CEO and board chair roles held jointly or separately: Much ado about nothing? The Academy of Management, 11(3), 11-20.
  15. Dalton, D., Daily, C., Johnson, J., & Ellstrand, A. (1999). The number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.
  16. Davis, J. H., Schoorman, D., & Donaldson, L. (1997). Toward a stewardship theory of management. Acad Manage Review, 22(1), 20-47.
  17. Dehaene, A., De Vuyst, V., & Ooghe, H. (2001). Corporate performance and board structure in Belgian companies. Long Range Planning, 34(3), 383-398.
  18. Demsetz, H. (1983). The structure of equity ownership and the theory of the firm. Journal of Law and Economics, 26(2), 375-390.
  19. Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy, 95(6), 1155-1175.
  20. Donaldson, L., & Davis, J. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(l), 49-64.
  21. Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35-54. Retrieved from https://doi.org/10.1016/S0304-405X(98)00003-8.
  22. Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate Governance: An International Review, 11(2), 102-111.
  23. Finkelstein, S., & D’Aveni, R. A. (1994). CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5), 1079-1108.
  24. Gillan, S. L. (2006). Recent developments in corporate governance: An overview. Journal of Corporate Finance, 12(3), 381-402.
  25. Godard, L., & Shatt, A. (2004). Caractéristiques et fonctionnement des conseils d’administration français: Un état des lieux. Retrieved from https://halshs.archives-ouvertes.fr/halshs-00593824/document.
  26. Habtoor, O. S. (2021). The influence of board ownership on bank performance: Evidence from Saudi Arabia. Journal of Asian Finance, Economics and Business, 8(3), 1101–1111.
  27. Haniffa, R. & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal ofBusiness Finance & Accounting, 33, 1034-1062.
  28. Harris, D., & Helfat, C. E. (1998). CEO duality, succession, capabilities, and agency theory: Commentary and research agenda. Strategy Manage Journal, 19(9), 901-904.
  29. Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic evidence. Economic Policy Review, 9(1), 7-26.
  30. Huther, J. (1997). An empirical test of the effect of board size on firm efficiency. Economics Letters, 54(3), 259-264.
  31. Kudal, P. & Dawar, S. (2020). The impact of board composition on firm performance with reference to selected Indian companies. International Journal of Recent Technology and Engineering, 8(6), 2818-2824.
  32. Kumar, N., & Singh, J. P. (2012). Outside directors, corporate governance and firm performance: Empirical evidence from India. Asian Journal of Finance & Accounting, 4(2), 33-55.
  33. Latif, B., Shahid, M. N., Haq, M. Z. U., Waqas, H. M., & Arshad, A. (2013). Impact of corporate governance on firm performance: Evidence from sugar mills of Pakistan. European Journal of Business and Management, 5(1), 51-59.
  34. Liang, N., & Li, J. (1999). Board structure and firm performance: New evidence from China’s private firms. Academy of Management Annual Conference, Chicago, USA, August 7-10, 1999.
  35. Loderer, C. & Peyer, U. (2002). Board overlap, seat accumulation and share prices. European Financial Management, 8(2), 165-192.
  36. Mak, Y. T. & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin Finance Journal, 13(3), 301-318.
  37. McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595-612.
  38. Morck, R., Schleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20(1-2), 293-315.
  39. Moscu, R. G. (2013). The relationship between firm performance and board characteristics in Romania. International Journal of Academic Research in Economics and Management Sciences, 2(1), 167-175.
  40. Mubeen, R., Han, D., Abbas, J., Álvarez-Otero, S. & Sial, M. S. (2021) The relationship between CEO duality and business firms’ performance: The moderating role of firm Size and corporate social responsibility. Frontiers in Psychology, 12, 669715. Retrieved from Doi: 10.3389/fpsyg.2021.669715.
  41. Postma, T. J. B. M., Ees, H. V., & Sterken, E. (1996). Board composition and firm performance in the Netherlands. Eastern Economic Journal, 29(1), 41-58.
  42. Raluca-Georgiana, M. (2013). Does CEO duality affect corporate performance. International Journal of Academic Research in Economics and Management Science, 2(1), 156-166.
  43. Ranasinghe, D. N. (2010). Composition and configuration of the board and firm performance. In Proceedings of the 1st International Conference on Business and Information, University of Kelaniya, Sri Lanka.
  44. Rashid, A. (2009). Board composition, board leadership structure and firm performance: Evidence from Bangladesh. The Accounting and Finance Association of Australia and New Zealand (AFAANZ), Annual Conference, 5-7th July, Adelaide, South Australia.
  45. Rashid, A., & Lodh, S. C. (2008). The influence of ownership structures and board practices on corporate social disclosures in Bangladesh. Research in Accounting in Emerging Economies, 8, 211-237. Retrieved from https://doi.org/10.1016/S1479-3563(08)08008-0.
  46. Rashid, A., Fairuz, R., & Husein, Z. (2010). A new perspective on board composition and firm performance in an emerging market. Corporate Governance: The International Journal of Business in Society, 10(5), 647-661.
  47. Salmon, W. J. (2000). Crisis prevention - How to gear up your board. Harvard Business Review on Corporate Governance, Harvard Business School Press, 5-6.
  48. Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783.
  49. Sridharan, U. V., & Marsinko, A. (1997). CEO duality in the paper and forest products industry. Journal of Finance and Strategic Decisions, 10(1), 59-65.
  50. Srivastava, A. (2011). Ownership structure and corporate performance: Evidence from India. International Journal of Humanities and Social Science, 1(1), 23-29.
  51. Uadiale, O. M. (2010). The impact of board structure on corporate financial performance in Nigeria. International Journal of Business and Management, 5(10), 155-166.
  52. Weir, C., Laing, D. & McKnight, P. J. (2003). Internal and external governance mechanisms: Their impact on the performance of large UK public companies. Journal of Business Finance and Accounting, 29(5-6) 579-611.
  53. Wijethilake, C. & Ekanayake, A. (2020). CEO duality and firm performance: The moderating roles of CEO informal power and board involvements. Social Responsibility Journal, 16(8), 1453-1474. 
  54. Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.
Abstract Views: 24
PDF Views: 68

Advanced Search

News/Events

Institute of Managem...

Deccan Education Society Institute of Management Development and Re...

S.B. Patil Institute...

Pimpri Chinchwad Education Trust's S.B. Patil Institute of Mana...

D. Y. Patil IMCAM, A...

D. Y. Patil Institute of Master of Computer Applications & Managem...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management International Conference on ...

Department of Commer...

Department of Commerce, Faculty of Commerce & Business, University...

Birla Institute of M...

Birla Institute of Management Technology (BIMTECH) 3rd Pritam Singh M...

OP Jindal University...

OP Jindal University, India 4th International Conference on  ...

Department of MBA, N...

Department of MBA, Narayana Engineering College Nellore International...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management Conference Proceedings,...

Online Proceedings R...

Conference Proceedings, March 2023 ISBN: 978-81-956810-6-8 ...

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.