An empirical analysis of board activity, corporate governance mechanisms, and firm value
Abstract
We studied the relationship between board activity, a firm’s existing corporate governance
structures and mechanisms, and firm value. The association between board activity and
corporate governance variables is complex and multi-faceted. The two testable propositions in
the study were that: an association exists between board activity and an array of corporate
governance mechanisms; and that board activity adds value to the firm and by inference to
shareholders. Board activity, measured by the frequency of board meetings, had a negative but
lagged relationship with financial performance, a negative relationship with the size of the
board, a negative relationship with insider ownership, a positive relationship with both the
number of block holders and the number of other directorships held by directors, and
insignificant relationships to both board independence and the number of committees. This
confirms that other ownership and board composition characteristics could substitute board
activity. The analysis of the interaction between board meetings frequency and the value of the
firm is lagged but positive, implying relatively low market valuations triggers intervention of
the board through frequent meetings that apparently impacts positively on firm value.
Citation
Lishenga, Lisiolo (2015). An empirical analysis of board activity, corporate governance mechanisms, and firm value. 5(2) (2015)Publisher
University of Nairobi