Board Composition, Corporate Performance, and the Cadbury Committee Recommendation

47 Pages Posted: 17 Mar 2005

See all articles by Jay Dahya

Jay Dahya

Zicklin School of Business, Baruch College - The City University of New York

John J. McConnell

Purdue University

Date Written: October 2005

Abstract

During the 1990s and beyond, countries around the world have witnessed calls and/or mandates for more outside directors on publicly-traded companies' boards even though extant studies find no significant correlation between outside directors and corporate performance. We examine the connection between changes in board composition and corporate performance in the UK over the interval 1989-1996, a period that surrounds publication of the Cadbury Report calling for at least three outside directors for publicly-traded corporations. We find that companies that added directors to conform with this standard exhibited a significant improvement in operating performance both in absolute terms and relative to various peer-group benchmarks. We also find a statistically significant increase in stock prices around announcements that outside directors were added in conformance with this recommendation. We do not endorse mandated board structures, but the evidence appears to be that such a mandate was associated with an improvement in performance in UK companies.

Keywords: Directors, Governance, Cadbury, Performance

JEL Classification: G38, G30, G34, G30

Suggested Citation

Dahya, Jay and McConnell, John J., Board Composition, Corporate Performance, and the Cadbury Committee Recommendation (October 2005). Available at SSRN: https://ssrn.com/abstract=687429 or http://dx.doi.org/10.2139/ssrn.687429

Jay Dahya (Contact Author)

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,814
Abstract Views
5,232
rank
8,680
PlumX Metrics