Do Boards Affect Performance? Evidence from Corporate Restructuring

Abstract:     
We examine the effect of board composition on the restructuring activities of a sample of 94 firms that have experienced a material decline in performance. We document that firms with a majority of outside directors on the board are more likely to initiate asset restructurings and employee layoffs and that the reduction in the scale of operations is larger for these firms than firms without a majority of outside directors. We also find subsequent improvements in operating performance for firms with a majority of outside directors that restructure, and conclude that board composition has a material impact on corporate performance.

Keywords: Board of Directors, Board Composition, Restructuring

JEL Classification: G30, G34

Accepted Paper Series