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Distinguished Researches in Humanities and Educational Sciences

17549 2024-06-12

The joint effect of boardcharacteristics on financialperformance

A

bstract Purpose– This paper aims to investigate the joint effect of board characteristics on financialperformance. Most of the existing literature implicitly assumes that the relationship between eitherboard composition, or board leadership structure and financial performance is direct.Design/methodology/approach– The generalized least squares method was performed as a paneldata analysis on a sample of 40 Egyptian listed firms during the period from 2008 to 2010.

Findings– The results demonstrated that under board leadership structure that assigns the duties ofthe CEO and chairman to the same person, increasing the proportion of non-executive members to thetotal number of directors has a negative impact on firm financial performance.Practical implications– First, corporate governance structures do not operate in a vacuum, andtherefore, corporate governance mechanisms must be considered and assessed altogether. Second,failure to understand the underlying interdependency among corporate governance mechanisms mayresult in arguments that blame some corporate governance designs for poor financial performance.Third, there is no single board governance mechanism that can be considered ideal, but there arecombinations of these mechanisms that are preferred.Originality/value– The paper adds to the corporate governance literature by providing empiricalevidence from the emerging market of Egypt. The evidence shows that the relationship between boardcharacteristics and financial performance is not a monotonic relationship. Consequently, these findingsimply that existing evidence explaining the relationship between board characteristics and financialperformance needs to be interpreted with some caution. Read more

 

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