The contemporary business environment is
characterised by uncertainty and risk, making it increasingly difficult to
forecast and control the tangible and intangible factors which influence firm
performance. Customers are becoming more demanding, necessitating increased
focus on managerial professionalism and quality of service delivery. In
response to the external pressures, firms resort to different strategic
responses such as restructuring, downsizing, business process reengineering,
benchmarking, total quality management, management by objectives etc., to
improve and sustain their competitive positions.

In a dynamic environment, boards become very
important for smooth functioning of organisations. Boards are expected to
perform different functions, for example, monitoring of management to mitigate
agency costs hiring and firing of management, provide and give access to
resources, grooming CEO and providing strategic direction for the firm. Boards
also have a responsibility to initiate organisational change and facilitate
processes that support the organisational mission. Further, the boards seek to
protect the shareholder’s interest in an increasingly competitive environment
while maintaining managerial professionalism and 2 accountability in pursuit of
good firm performance. The role of board is, therefore, quite daunting as it
seeks to discharge diverse and challenging responsibilities. The board should
not only prevent negative management practices that may lead to corporate
failures or scandals but also ensure that firms act on opportunities that
enhance the value to all stakeholders. To understand the role of board, it
should be recognised that boards consists of a team of individuals, who combine
their competencies and capabilities that collectively represent the pool of
social capital for their firm that is contributed towards executing the
governance function . As a strategic resource, the board is responsible to
develop and select creative options in advancement of the firm. Given the
increasing importance of boards, it is important to identify the board
characteristics that make one board more effective from another. This study
seeks to identify and examine the board characteristics that make it effective
and contribute towards firm performance.

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The current study aims to examine the
relationship between board characteristics and firm performance with respect to
listed firms in USA market, using a sample of U.S. 66 public companies from
2004 to 2015. We argue that the effects of corporate governance (i.e., board
dependence and CEO duality) and managerial share ownership will be affected for
firm performance. Further, we contend that while good governance and managerial
incentives are necessary conditions for superior performance, they are not on
their own sufficient to ensure superior performance – we also need to consider
the capacity of the directors on the board to perform their duties because
their ability to provide resources and monitor managers varies. For example,
companies A and B have the same governance structure and managerial share
ownership, but the members of company’s A’s board of directors have better
skills and expertise than the members of company B. All else being equal, it is
logical to expect that company A’s board of directors will perform better at
helping managers to perform their duties and conducting manager-monitoring
activities than company B’s board.

The remainder of the
paper is organized as follows. Section 2 discusses previous literature in order
to develop the hypotheses. Section 3 presents the hypothesis development.
Section 4 explains the sample selection, research design and how the variables
used in the study are measured. Section 5 presents the results of the
statistical analyses. Section 6 provides general discussions of the main
results the limitations of this study, and directions for future research.






In this section, I present a review of
literature on board characteristics and firm performance linkage. Extant
literature shows that many studies carried out until 1990s were mostly
normative/prescriptive in nature (e.g., Fama, 1980; Fama and Jensen, 1983;
Lorsch & MacIver, 1989). These studies were from agency perspective and
talked about the benefits of independence of board, separating the positions of
board chair and the CEO, and increasing representation by non-executives to
make boards more effectively perform their role of monitoring the management.
Evidence form empirical studies undertaken in last two decades indicate support
to various propositions board characteristics to firm performance. For example,
firm performance is linked positively with the proportion of executive
directors (Bhagat & Black, 1999; Keil & Nicholson, 2003), non-executive
directors (Fox, 1998; Rhoades et al., 2000; Chiang, 2005; Fan, Lau & Young,
2007), CEO duality (Boyd, 1995; Kula, 2005), separation of chair and CEO
positions (Rechner & Dalton, 1991; Fox, 1998; Coles & Hesterly, 2000;
Daily et al., 2003). In general, while providing support to existing theories,
studies also produce conflicting evidence. A meta-analysis of board
composition, leadership structure and financial performance carried out by
Dalton et al. 36 (1998) covering 54 studies of board composition and 31 studies
of board leadership structure did not provide any systematic relationship
between board structure and firm performance. However, subsequent studies
(Gompers, et al., 2003; Kiel & Nicholson, 2003) showed a positive
relationship between board composition and firm performance. Others scholarly studies
suggest that within board structure, different internal governance mechanisms
such as director ownership, CEO duality, non-executive directors are
substitutable (Bathala & Rao, 1995; Booth, Cornett and Tehranian, 2002;
Peasnell, Pope & Young, 2003). It is also posited that various governance
mechanisms may operate differentially for different sizes of firms, indicating
the tradeoffs to control agency conflicts. While many of the studies mentioned
here cover a broad range of issues in corporate governance such as voting
rights, disclosures, regulations etc, the current study focuses on the top
management team of the firm, from an upper echelons perspective. In the
following section, I present the review of literature to identify various
characteristics of the board namely director ownership, CEO duality, gender
diversity, PhDs, board meetings and board size that should be examined for
their impact on firm performance.

The more factors above literature reviews also
will be discussed broadly under the next chapter which is hypothesis


Hypothesis 1:
Boards with CEO duality have negative effect on firm performance


leadership structure can be divided into combined leadership structure and
separated leadership structure. This has something to do with having two
separated persons as CEO and chairman or one person holding both the positions.
Where a single person assumes the position of chairman and CEO simultaneously
is call the CEO duality.

Although monitoring management efficiency can be
enhance through the CEO duality it was found that through many studies that CEO
duality has negative effect on the corporate performance. When considering the
US market till 1990’s 70% of the firms in US had gone to the duality structure
and nowadays just over 50% firms having the duality structure. This decreasing
trend towards abolishing duality is with the mixed evidence which says it’s
having effect on firm performance. Although there is many evidence about the
cost and benefits associate with each leadership model there is lack of
evidence on how it linking with firm performance which make this trend a risk.
So objective of this hypothesis to test the effect by duality on board
performance using the US market data.