Board Capital, Board Characteristics, and Managerial Share Ownership: Impact on Firm Performance

Abstract:     
The purpose of this study is to investigate the effects of board capital on the relationship between CEO duality, board dependence, managerial share ownership and performance. We argue that board capital (the ability to perform manager-monitoring activities and to provide advices and counsels to management) varies across board members. Highly qualified and prestigious board members will be better at monitoring management and providing resources. Using both resource dependence and agency theories, we predict and find that CEO duality and board dependence negatively affect performance and board capital mitigates the negative effects. With regard to managerial share ownership, the results are not statistically significant. Our findings are consistent with recent corporate governance guidelines recommending the separation of the role of CEO and chairman of the board and the need to have more outside directors on the boards. The results support the view that firms benefits from board capital in terms of monitoring managers and providing resources to the firms.

Number of Pages in PDF File: 31

Keywords: Board capital, managerial incentives, board dependence, CEO duality, resource dependence theory

JEL Classification: D21, G32, L1, M41

working papers series