Board of Directors and Exchange Requirements: Operating Performance of Traditionally Insider Controlled Boards

Posted: 3 Nov 2015

See all articles by Dishant Pandya

Dishant Pandya

Cleveland State University

Chenchu Bathala

Cleveland State University

Date Written: November 2, 2015

Abstract

The main objective of this research is to examine the operating performance of the companies whose boards have been traditionally controlled by the insiders (insiders and/or affiliated insiders comprising more than 50% of the board membership) and whose boards now include majority of outsiders as required by law and exchange requirements. If, as suggested by Jensen & Meckling (1976) and others, having majority of outsiders on the board will lead to reduce agency costs between shareholders and managers, then the operating performance of the company is likely to improve as a result of the new requirements. On the other hand, as theorized by Harris & Raviv (2008), if insiders bring more firm specific knowledge to the board and thus help increase the shareholder value, we should expect a negative relationship between board independence and operating performance. The results presented here suggest that there is no statistical difference in the firm performance over a period of three years after the passage of the regulations requiring board independence.

Suggested Citation

Pandya, Dishant and Bathala, Chenchu, Board of Directors and Exchange Requirements: Operating Performance of Traditionally Insider Controlled Boards (November 2, 2015). JFAR Vol I, 2013. Available at SSRN: https://ssrn.com/abstract=2685323

Dishant Pandya (Contact Author)

Cleveland State University ( email )

Cleveland, OH 44115
United States

Chenchu Bathala

Cleveland State University

Cleveland, OH 44115
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
245
PlumX Metrics