Does the Independence of Corporate Boards and Committees Improve Firm Performance: An Analysis of Family and Non-Family Firms

Description

Following the U.S. governance reforms of the New York Stock Exchange and NASDAQ in 2003 containing new requirements for director independence, many countries (including Asian and developing countries) have modified their corporate governance regulations and guidelines to improve the representation of independent non-executive (outside) directors (INEDs) on corporate boards and key board committees (e.g., audit, nomination, and remuneration committees).The main objective of such regulatory changes is to strengthen board monitoring and enhance shareholder value by improving firm performance. Nevertheless, the evidence in the literature on the role of independent boards in improving firm performance, which is primarily based on U.S. firms, is mixed. Since the independence of corporate boards and key committees are unlikely to be considered important in firms with concentrated ownership and because of the differences in the ownership structure of firms operating in Western industrialized countries and Asian countries, we conduct empirical tests based on Hong Kong firms to evaluate how family ownership influences the composition and independence of corporate boards and the association between firm performance and corporate board and committee independence. We specifically investigate whether firms, and especially family firms, recognize the need for and importance of independent corporate boards and key board committees, and whether board independence is likely to have a significant impact on firm performance in family versus non-family firms.