City Research Online

The Board of Directors and Firm Performance: Empirical Evidence from Listed Companies

Melville, R. & Merendino, A. (2019). The Board of Directors and Firm Performance: Empirical Evidence from Listed Companies. Corporate Governance, 19(3), pp. 508-551. doi: 10.1108/cg-06-2018-0211


Purpose: This study seeks to reconcile some of the conflicting results in prior studies of the board structure/firm performance relationship, and to evaluate the effectiveness and applicability of agency theory in the specific context of Italian corporate governance practice.

Design/methodology/approach: This research applies a dynamic Generalized Method of Moments (GMM) methodology on a sample of Italian listed companies over the period 2003-2015. Proxies for corporate governance mechanisms are the board size, the level of board independence, ownership structure, shareholder agreements and CEO-Chairman leadership.

Findings: While directors elected by minority shareholders are not able to impact upon performance, independent directors do have a non-linear effect on performance. Board size has a positive effect on firm performance for lower levels of board size. Ownership structure per se and shareholder agreements do not affect firm performance.

Research Implications: This paper contributes to the literature on agency theory by reconciling some of the conflicting results inherent in the board structure-performance relationship. Firm performance is not necessarily improved by having a high number of independent directors on the board. Ownership structure and composition do not affect firm performance; therefore, greater monitoring provided by concentrated ownership does not necessarily lead to stronger firm performance.

Practical Implications: We suggest that Italian corporate governance law should improve the rules and effectiveness of minority directors by controlling whether they are able to impede the main shareholders to expropriate private benefits on the expenses of the minority. The legislator should not impose any restrictive regulations with regard to CEO-duality, as the influence of CEO-duality on performance may vary with respect to the unique characteristics of each company.

Originality/Value: The results enrich the understanding of the applicability of agency theory in listed companies, especially in Italy. Additionally, this paper provides a comprehensive synthesis of research evidence of agency theory studies.

Publication Type: Article
Publisher Keywords: Corporate Governance, Board of Directors, Agency Theory, Listed Companies, Performance, Italy
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Bayes Business School > Management
SWORD Depositor:
[thumbnail of The Board of Directors and Firm Performance Empirical Evidence from Listed Companies (accepted version).pdf]
Text - Accepted Version
Download (910kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login