Corporate Governance, Board Composition, Director Expertise, and Value: The Case of Quality Excellence

56 Pages Posted: 24 Feb 2017

See all articles by Andreas Charitou

Andreas Charitou

University of Cyprus

Ifigenia Georgiou

Aston University - Aston Business School

Andreas C. Soteriou

University of Cyprus

Date Written: February 22, 2017

Abstract

In this paper, we highlight the strategic role of the board of directors (BOD) in business excellence and its link with firm value. We empirically investigate the relationship between the composition of the BOD and the winning of a Malcolm Baldrige National Quality Award (MBNQA) or a local award explicitly based on the MBNQA criteria, a proxy for business excellence. Using a contingency approach, we examine several characteristics of the BOD, such as the number of inside directors, the number of directors who can be considered industry experts, and the number of directors with management expertise. We show that the likelihood of winning a quality award is positively associated with the number of outside directors with Ph.D. in the main object of business operations, and the number of outside directors with recent industry expertise. Subsequent residual analysis reveals that firm value is positively associated with the degree of the fit between board composition and quality management strategy. Specifically, operating income before depreciation, operating margin, Tobin’s Q, and ten-day raw and market adjusted returns, are positively related to the degree of fit, while cost per dollar of sales, negatively. Thus, we, conclude that an appropriate board structure that fits the QM strategy exists, and this fit is positively associated with firm value.

Keywords: board of directors, corporate governance, director expertise, strategic role of the board quality management, quality awards

JEL Classification: G30, G34, M10

Suggested Citation

Charitou, Andreas and Georgiou, Ifigenia and Soteriou, Andreas C., Corporate Governance, Board Composition, Director Expertise, and Value: The Case of Quality Excellence (February 22, 2017). Multinational Finance Journal, Vol. 20, No. 3, p. 181-236, 2016. Available at SSRN: https://ssrn.com/abstract=2923084

Andreas Charitou

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893624 (Phone)
+357 2 895030 (Fax)

Ifigenia Georgiou (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

Andreas C. Soteriou

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS

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