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Does governance structure have any effect on firm performance during the financial crisis

Does governance structure have any effect on firm performance during the financial crisis Purpose – The financial crisis of 2008-2009 was truly global in nature that affected all sectors and countries of the world. Being considered that a board of directors is the main governance mechanism through which a company is governed and managed. The purpose of this paper is to examine the effect of the governance structure of a company on its financial performance during the period of financial crisis. Design/methodology/approach – The study investigates the effect of board structure parameters – board leadership, directors and board size on the financial performance for 164 non-financial listed firms in India during the period of financial crisis of 2008-2009. Findings – The study finds a significant positive effect with Chief Executive Officer duality, executive chairperson and proportion of inside directors on the firm’s financial performance. Independent directors have no significant influence, while non-executive (grey) director’s being affiliated with the firm has a negative influence on firm’s financial performance. A larger board has a negative relationship with the firm’s financial performance. Research limitations/implications – The study is limited to large non-financial firms of the Bombay Stock Exchange-200 index. The study may be extended to include other firms to generalize the findings. Practical implications – Results imply that during the period of financial distress, a company having more inside (or management) directors with an executive chairperson are in a better position to manage company resources with positive impact on financial performance. Companies with larger boards may find it difficult to take quick decisions, which ultimately affect their performance. Originality/value – The study is original in its idea of assessing company strategy to adopt a suitable governance structure that can sustain its performance during the period of financial crisis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

Does governance structure have any effect on firm performance during the financial crisis

Journal of Strategy and Management , Volume 8 (4): 16 – Nov 16, 2015

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1755-425X
DOI
10.1108/JSMA-02-2015-0014
Publisher site
See Article on Publisher Site

Abstract

Purpose – The financial crisis of 2008-2009 was truly global in nature that affected all sectors and countries of the world. Being considered that a board of directors is the main governance mechanism through which a company is governed and managed. The purpose of this paper is to examine the effect of the governance structure of a company on its financial performance during the period of financial crisis. Design/methodology/approach – The study investigates the effect of board structure parameters – board leadership, directors and board size on the financial performance for 164 non-financial listed firms in India during the period of financial crisis of 2008-2009. Findings – The study finds a significant positive effect with Chief Executive Officer duality, executive chairperson and proportion of inside directors on the firm’s financial performance. Independent directors have no significant influence, while non-executive (grey) director’s being affiliated with the firm has a negative influence on firm’s financial performance. A larger board has a negative relationship with the firm’s financial performance. Research limitations/implications – The study is limited to large non-financial firms of the Bombay Stock Exchange-200 index. The study may be extended to include other firms to generalize the findings. Practical implications – Results imply that during the period of financial distress, a company having more inside (or management) directors with an executive chairperson are in a better position to manage company resources with positive impact on financial performance. Companies with larger boards may find it difficult to take quick decisions, which ultimately affect their performance. Originality/value – The study is original in its idea of assessing company strategy to adopt a suitable governance structure that can sustain its performance during the period of financial crisis.

Journal

Journal of Strategy and ManagementEmerald Publishing

Published: Nov 16, 2015

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