THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
Master’s thesis by
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
Master’s thesis by
Faculty of Economics and Business Master: Organization
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
EVIDENCE FROM SOUTH AFRICA
Master’s thesis by HEIN GERARDUS HENDRIKUS TER BRAAK December 2008 Address 1079 GW Amsterdam Tel. Nr.: ·· (+31) 06 21 88 64 99 Email: ··Heinterbraak@hotmail.com Student No.: University of Groningen Faculty of Economics and Business Master: Organization
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
EVIDENCE FROM SOUTH AFRICA
HEIN GERARDUS HENDRIKUS TER BRAAK December 2008 Address: ··Rijnstraat 61 1079 GW Amsterdam ·· (+31) 06 21 88 64 99 ··Heinterbraak@hotmail.com Student No.: ··1347705 University of Groningen Faculty of Economics and Business Master: Organizational & Management Control
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
EVIDENCE FROM SOUTH AFRICA
HEIN GERARDUS HENDRIKUS TER BRAAK December 2008 : ··Rijnstraat 61-a3 1079 GW Amsterdam ·· (+31) 06 21 88 64 99 ··Heinterbraak@hotmail.com ··1347705 University of Groningen Faculty of Economics and Business
& Management Control
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
HEIN GERARDUS HENDRIKUS TER BRAAK
··Heinterbraak@hotmail.com
Faculty of Economics and Business & Management Control
THE INFLUENCE OF BOARD MEETING FREQUENCY, BOARD
COMPOSITION, BOARD SIZE AND NUMBER OF
DIRECTORSHIPS ON FIRM PERFORMANCE
HEIN GERARDUS HENDRIKUS TER BRAAK
ABSTRACT
This study has examined the effects of four different board characteristics on firm performance. These four characteristics are the number of directorships held by directors, the number of board meetings, the board composition and the size of the board. Since these effects have not previously been studied on the South African market, this market has been chosen as the area of attention. A unique set of data has been hand collected for this purpose. These raw data have been modified,- and examined using three different correlation/ regression tests. I have found that the number of board meetings is negatively correlated to firm performance. Board size on the contrary is positively correlated to corporate performance. The composition of the board and the number of directorships held do not seem to be related with firm performance. The negative correlation found for board meetings is in line with results from other studies. The discovery that board size is positively related to corporate performance in South Africa is unique. It may be seen as the first piece of evidence suggesting that the efficacies of African and Western boards are not similarly structured.
Keywords: Board of directors, directorships, board meetings, board composition,
ACKNOWLEDGEMENTS
After months of writing I hereby present the thesis I am proud to present. I have written this thesis to complete my Master of Business Administration with the specialization Organizational and Management Control. I have worked on this thesis with a great deal of enthusiasm, more than I could have imagined on forehand, I must say. In this section I would like to direct a small word of gratitude towards the people that helped me completing this thesis.
First of all, I would like to thank Mr. Hooghiemstra for his time and effort. Valuable responses to the issues I faced generally came within a couple of days, something that really helped me to plan ahead. Second I would like to thank Mrs. Smits van Waesberghe who has read early parts of this thesis and provided me with some useful comments as well. Lastly, I would like to thank my friends and girlfriend, who were always willing to listen to my stories about my thesis and provide me with their thoughts on it.
I would now like to invite you to read my thesis.
TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION --- 6
1.1 Opening --- 6
1.2 South Africa --- 7
1.3 Research Question --- 8
1.4 Relevance + Motivation of study --- 8
1.5 Outline paper --- 9
CHAPTER 2 DISCUSSION OF RELEVANT LITERATURE --- 10
2.1 Introduction --- 10
2.2 Number of directorships --- 10
2.2.1 Accumulation of experience flow --- 11
2.2.2 Busyness Flow --- 13
2.2.3 Hypothesis formulation --- 14
2.3 Board size --- 15
2.3.1 Positive effects associated with larger boards --- 15
2.3.2 Negative effects associated with larger boards --- 15
2.3.3 Empirical research on board size --- 16
2.3.4 Hypothesis formulation --- 16 2.4 Board composition --- 17 2.4.1 Outside Directors --- 17 2.4.2 Inside Directors --- 18 2.4.3 Grey Directors --- 18 2.4.4 Empirical evidence --- 19 2.4.5 Hypotheses formulation --- 20 2.5 Meetings --- 21
CHAPTER 3. RESEARCH DESIGN --- 22
3.1 Sample and Data description --- 22
4.2 Hypotheses testing --- 30
4.2.1 Univariate tests --- 30
4.2.2 Multivariate tests --- 31
4.2.3 Applying control variables --- 34
4.3 Discussion--- 34 4.3.1 Board Size --- 34 4.3.2 Meeting Frequency --- 35 4.3.3 Board Composition --- 36 4.3.4 Number of directorships --- 37 CHAPTER 5. CONCLUSIONS --- 38
5.1. Summary and conclusions --- 38
5.2 Limitations --- 39
5.3 Possibilities for further research --- 40
REFERENCES --- 41
Internet Sources: --- 45
CHAPTER 1 INTRODUCTION
1.1 Opening
The concept of corporate governance has become of major importance for corporations worldwide. Corporate scandals like the ones at WorldCom, Tyco, Enron and Xerox are numerous and have altered the business environment. Investors have become more wary when selecting an investment opportunity and they want to be certain that now and in the future the firm is managed in a responsible and sustainable way. In a survey performed by McKinsey (2000), it was found that investors were willing to pay a premium, up to 28 percent, if they would have the conviction that a company has superior corporate governance over other firms, even though corporate performance of the companies is equal.
During the last decades more and more corporate governance codes have been developed all over the world. The main thought behind this is the desire for more transparency and accountability and the desire to increase investor confidence (of potential and existing investors) in the stock market as a whole (Mallin, 2007). Amongst others these codes often encompass recommendations and/or regulations about the board, board committees, remuneration, risk management, accounting & auditing, relation with shareholders and communication. Literature shows that the development of these recommendations and regulations has had a positive effect on firm performance in general. Jain and Rezaee (2002) for instance, study the market reaction after the implementation of the Sarbanes-Oxley Act and find positive results. They suggest that the act restored investor confidence and that the benefits of it clearly outweigh the costs. Similar research has been performed after the implementation of the German code. These results also suggest that investors value companies that comply with the code’s regulations higher than those with less compliance (Goncharov et al., 2006).
Another group of researchers have rated companies for their level of corporate governance, and compared this to different kinds of performance measures. Gompers et al. (2003) for instance develop a corporate governance index containing of 24 different measures, and find a clear positive relationship between a company’s corporate governance and stock prices. If investors would have followed their index and bought companies scoring lowest of the index and sold companies that scored highest the index, they would have earned 8.5 percent per year. Drobetz et al. (2004) performed similar research to that of Gompers et al., other than it focused itself strictly on the German market. They found a 12% premium if an investor would go short on companies with a low corporate governance score and bought shares of companies with a high corporate governance score. Similar research has been performed by Black et al. (2006) on the Korean market who come up with comparable results. Evidence has also been found on the South African market. In a report by the Deutsche Bank Securities (2002) the relation between corporate governance and market valuation has been studied. They constructed five groups of companies, all with a different level of corporate governance practices. They find a 72 percent (!) premium in companies in the highest group compared to them in lowest group if the EV/EBITDA ratio is the measurement, and a 52 percent difference, if measured by the P/E ratio.
performance. Therefore it is necessary to study the individual characteristics and features that are associated with corporate governance.
These features can be categorized as either internal or external characteristics. The internal category encompasses the board of directors, managerial incentives, capital structure, bylaw and charter provisions and internal control systems. Externally there are law and regulations, markets and private sources of external oversight (Gillan, 2006). All of these characteristics have certain relations with corporate governance and therefore with firm performance. The direction and importance of these relations has been a topic of a great deal of discussion in the literature. As an example, let’s glance at a firm’s capital structure, which is subject of much debate. Research has suggested that debt can act as a self-enforcing governance mechanism. This means that issuing debt forces managers to generate cash to meet interest and principle obligations. Therefore debt moderates the potential agency costs of free cash flow (Jensen, 1986). In other researches however, there are counterarguments suggesting that meeting interest payments is easy for most firms and that firms typically rely on internal financing (Shleifer & Vishny, 1997). Arguments are numerous for both sides, but eventually empirical research will have to be conducted to examine the relations in practice. This previous discussion is representative for most discussions about characteristics associated with corporate governance; relations can often be interpreted in different directions.
This study will focus on one of the characteristics differentiated by Gillan, namely the board of directors. Many view the board of directors as the backbone of corporate governance (Fama & Jensen, 1983 for instance). Since the board has a fiduciary obligation to shareholders and are responsible to provide strategic direction and monitoring, the board of directors fulfils a very important task in governance. Four different characteristics of the board will be examined in this paper. These are board busyness, board size, board composition and meeting frequency.
Although research about these four characteristics is expanding and providing more thorough analysis regarding the role of these characteristics on the governance of an organization, there is still some controversy left. Relations being found are ambiguous and can be interpreted in multiple ways. Furthermore, most of the research focuses on the American/European market and might therefore not be applicable and accurate in explaining practice in other regions.
1.2 South Africa
This study will extend the existing literature since it is performed on the South African market. South Africa and even the African continent have not been subject of much research in the field of corporate governance. This is regretful, since “…corporate governance is of particular concern in developing economies where the infusion of international investor capital and foreign aid is essential to economic stability and growth” (Vaughn & Verstegen, 2006, p.504).
governance. The JSE has a market capitalization of 796 Billion US$ in 2007, which ranks it at the 19th place worldwide (JSE, Market Statistics).
In 1992 the King Committee on Corporate Governance was established initiated by the Institute of Directors (IoD) of South Africa. In 1994 the King Report on corporate governance was released and this drew attention to the importance of a properly-functioning board of directors as a key ingredient of good corporate governance (IoD, 1994). In 2002 the second King report was published and formulated strict guidelines for companies about board structure, risk management, accounting and reporting, integrated sustainability reports and about a firms relations with shareholders (IoD, 2002). The Johannesburg Stock Exchange has incorporated these guidelines and companies are obliged to post a statement of compliance concerning these guidelines in their annual reports. These developments and changes made South Africa into an appealing opportunity for investments. Evidence provided by Deutsche Bank Securities (2002) has shown that there are still big differences between the levels of corporate governance in organizations, and that investors can benefit from this. These differences seem to be much bigger than in other countries (Gompers et al., 2003, Drobetz et al., 2004), suggesting that the role of corporate governance in South Africa might be not the same one as for example in Europe or North-America. This makes research in this country significant and interesting.
1.3 Research Question
This study will perform research on the South African market using unique hand collected data about 94 companies registered at the JSE. Information regarding individual directors, their other board functions, the attendance and number of board meetings, and board composition has been gathered. Next to that information containing firm characteristics resembling industry, size and performance measurements like Return on Assets, Return on Equity and Market-to-Book value have been collected. With this data, the effects of board busyness, board size, board composition and meeting frequency will be compared to firm performance. With these analyses I hope to answer the next research question:
RQ: What effects do board characteristics have on firm performance of South African
firms?
To answer this question I will use the following sub questions:
SQ1: What evidence is provided by previous research studying the relation between board
structure and firm performance?
SQ2: What are the effects of busy boards on the performance of the firm? SQ3: What effect does board size have on firm performance?
SQ4: How does the composition of the board affect firm performance?
SQ5: In what way does the number of meetings have influence on the performance of the
firm?
1.4 Relevance + Motivation of study
These studies however, generally focus on large companies mainly in America, Europe or Japan. This study will expand the existing literature by focusing on the most important African stock market, namely the Johannesburg Stock Exchange. The African Continent is highly under exposed and therefore additional research will be of great value. This study does not only focus on large companies but also takes the smaller registered companies into account. By this, I expect to provide more insights on the relation between board characteristics and firm performance, whilst controlling for firm size.
Another feature of this study is the use of a unique hand collected database. This has a great advantage over existing databases in the form of timeliness. Data derived from existing databases is generally older than that from its hand collected opponent. This has implications for the results since they only explain historic relations when older data is used. These relations are not necessarily applicable to the present. This study uses data from 2006 and 2007 which will, at least to a great extent, resolve this problem.
1.5 Outline paper
CHAPTER 2 DISCUSSION OF RELEVANT LITERATURE
2.1 Introduction
The first author to address the board of directors was most certainly Adam Smith (1776). He has also been acknowledged to be the first author to describe some of the problems modern corporations still have to cope with; “The directors of [joint stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance [as owners]… Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company (p.700, in: Hermalin & Weisbach, 2003, p.9). He describes the problem that emerges when control over the firm, and ownership of the firm, are not in the same people’s hands. By distinguishing this problem, Smith laid the foundations for the agency theory. This problem has further been explored by scholars like Alchian & Demsetz (1972) and Jensen & Meckling (1976). They both come up with a ‘solution’ to the problem addressed by Smith, in the form of contracts. They view the firm as a set of contracts, wherein members act in self-interest but due to contracts, these members will also act in the interest of the firm. Fama (1980) further explores this idea. He advocates that Alchian & Demsetz’s and Jensen & Meckling’s ideas are redundant and not applicable to modern corporations because their theory is based around an entrepreneur or ‘employer’. In modern corporations however, Fama mentions, is no place for this entrepreneurial function. Ownership is in the hands of individuals bearing the risk and managers having the control over the firm. Certain corporate governance structures have therefore been put in place to align the interests of these two groups with each other. These corporate governance structures are for example the board, board committees, remuneration policies in the form of bonuses and stock options, and externally, the development codes of good corporate governance. These structures have all been developed to reduce the risks faced by shareholders of the firm and in some cases sharing these risks with the directors of the firm. In the literature a broad range of evidence is found, suggesting that good corporate governance in a firm has a positive effect on firm value. Scholars have developed corporate governance indices and compared this to company performance. On a large number of occasions they have found a positive relation between both, suggesting that corporate governance is a major consideration for shareholders when making an investment decision (Gompers et al., 2003; Drobetz et al., 2004; Black et al., 2006).
Altering and regulating certain board functions, is arguably one of the most effective ways to align the interests of the shareholders with the interests of the ones in control, since the board
is the formal institution when it comes to the control of the firm. There is extensive discussion
amongst scholars concerning various characteristics of the board and their influence on the performance of the firm. This article will examine four of these board characteristics. These characteristics are the influence of busy boards, the effect of board size, the board composition and the number of board meetings held. In the next sections these variables will be discussed more profoundly.
2.2 Number of directorships
directorships until the personal benefits from taking on another directorship equal the personal costs.” (1996, p.86) These personal benefits may also lie in the form of enhanced human capital. To the degree directors over invest in this form of human capital, shareholder wealth is reduced. “Shareholders like to have the CEO take on outside directorships until the marginal benefits to the firm equal the marginal costs to the firm.” (Booth & Deli, 1996, p.86) As can be seen, there is a clear gap between these two interests. Directors have incentives to take up more directorships than is good for the companies which they serve. Much research has been done to study the relationship between the total number of directorships possessed by directors and the influence of this on the company. This can be divided into two different strands of research.
The first one says that taking up additional directorships by directors enhances the experience and skills possessed by a director and is therefore beneficial for the boards in which they serve. We will call this strand of research the accumulation of experience flow. The second one is called the busyness flow (Ferris et al., 2003). This strand of research assumes that service in the board of multiple companies will result in a lack of time and resources so that the director will not be able to fulfill his or her task of overseeing the management of the company. This may result in lower attendance at meetings, lower firm performance, more cases of fraud etc. In the next two sections both strands of research will be the subject of further analyses.
2.2.1 Accumulation of experience flow
With the acceptance of an additional directorship, directors will be given the opportunity to look behind the scene of another company and see how things are done over there. Bacon & Brown (1974) suggest a number of ways in which directors can become better decision makers.
Their first suggestion is that directors will gain experience because of a broadened insight. The function might provide directors with valuable information about trends in interest rates, international business, or major input factor prices (p. 57). Their second suggestion is about the director’s exposure to innovation. A third source of gained experience can be the development of standards of comparison. Directors can confirm whether the policies and practices of their own firms are being followed by other firms and, if there are discrepancies, determine why. Fourth they mention the director’s exposure to different management styles and last they note that directors will be able to use other boards as a source of counsel.
Research shows that companies support the suggested advantages of directors having multiple directorships. Data provided by Fich & Shivdasani (2006) show that outside directors serve an average of 3.11 boards, which suggests that companies choose to employ directors associated with all the benefits suggested by Bacon and Brown.
Fich and Shivdasani (2006) also find evidence that outside directors associated with well-performing firms tend to hold more board seats than their counterparts in less-well-performing companies. This leads to the assumption that in order to expand their boards, firms scan the business environment for well-performing directors. Directors can therefore build up reputations as experts in decision making. This was named reputational capital and was first described by Fama (1980) and later expanded by Fama & Jensen (1983).
task and directors need these incentives to “not collude with managers to expropriate residual claimants.” Fama & Jensen hypothesize that these incentives lay in the reputations of outside directors as experts in decision control. The outside directors use their directorships to signal that they are decision experts, that they understand the importance of diffuse and separate decision control and that they can work with such decision control systems (Fama & Jensen, 1983).
Evidence in support of this Reputational Capital hypothesis has been provided by Zajac. He finds that sitting on boards of highly performing companies, increases an individual’s attractiveness in the market for directors. These directors hold in general more directorships in the future (Zajac, 1996). He finds even stronger support for this relation when directors have been involved in the increase of board control over top management. Specific examples of this are increases in the ratio of outside to inside directors, separation of the CEO and board chair positions, reduced corporate diversification, increased CEO compensation contingency and decreased total CEO compensation. Involvement in these activities resulted in an enhanced attractiveness of an individual director.
Basically, this shows that the market for directors is highly interested in directors with experience in the expansion of control over management.
Evidence on a positive relation between the number of directorships held by an executive, and prior firm performance has also been found by Ferris et al. (2003), suggesting the existence of reputational capital.
More evidence signifying a positive relation between the number of board seats held by an executive and firm performance has been provided by Di Pietra et al. (2008). They perform a study on the Italian market where they find that the level of busyness of a director has a positive and significant influence on a firm’s market performance. They conclude that “in the Italian business context, this finding is consistent with the notion that, directors who serve on many boards tend to be well connected, with reputable corporate, social and political links and therefore viewed by investors as more effective in signaling success in firms’ business activities to capital markets. (p. 87).” Harris and Shimizu (2004) perform a similar study on the impact of overboarded directors upon key strategic decisions. They find, to their own surprise, that overboarded directors have a positive influence on abnormal returns in the process of acquisitions. They suggest that selection committees should strive for a “blend of complementary skill sets” and that “investors should not be alarmed by the presence of busy directors. The proper mix of contributors is far more important.” (p 793)
Next to research investigating the relationship between well performing firms and number of directorships, research has also been conducted between financially distressed firms and the effects on director reputation. Gilson, for instance, finds that director reputation will suffer when firms either file for bankruptcy or privately restructure their debt. His research shows that in 3 years, the outside directors affiliated with these practices hold approximately 30% less board functions (Gilson, 1990). Kaplan and Reishus perform a comparable kind of research but instead of using the filing for bankruptcy or privately restructuring of debt, they use dividend cuts as a proxy for bad firm performance. Their findings show that top executives of companies reducing their dividends, are approximately 50% less likely to receive additional directorships than are top executives of companies that do not reduce their dividends (Kaplan & Reishus, 1990).
Few agency concerns exist when the firm has an independent board or the director has a high stock ownership in the firm. This evidence suggests that shareholders from the sending firm consider it a positive sign when their outside directors gain additional experience by serving in another board.
Studies in this field provide some substantial evidence suggesting the positive effect of additional directorships held by directors on firm performance. On the contrary, there are also authors suggesting that an additional directorship will make it unfeasible for a director to focus his attention, and will therefore have a negative effect on the firm. This will be discussed in the next section.
2.2.2 Busyness Flow
The last decade there is more and more criticism from institutional investors and other shareholders, blaming firms for underperforming because of the acceptance of directors in their boards with too many other board functions. Kayla Gillan, general counsel for CalPERS, has suggested that for directors with full-time responsibilities, service on more than one or two boards is too many (in press). In a report from the National Association of Corporate Directors, it is suggested that directors with full-time positions should not be serving more than three or four boards (1996). Comparable recommendations have also been made by the Council of Institutional Directors, who state that full-time directors should not serve more than two boards (1998).
These sources all mention the additional directorships held by full-time directors, but one can imagine that this relation also holds for outside directors. Lipton and Lorsch (1992) suggest that the most common problem directors face is a lack of time to perform their roles and that an individual needs to devote at least 100 hours per year, to fulfill his duties as a director. Taking up more directorships will result in even less time to perform these roles and therefore might cause directors to shirk their responsibilities of overseeing a company’s management. Ferris et al. (2003) have called this the Busyness Hypothesis of corporate directorships. By this they mean “… serving on multiple boards over commits an individual. As a consequence, such individuals shirk their responsibilities as directors. (…) If boards play an important role in firm performance, the implication of the Busyness Flow is that the presence of multiple directors on a firm’s board reduces oversight of management and, as a result the firm’s market value. Additionally, reduced monitoring by these busy directors might exacerbate other forms of agency costs, such as increased litigation exposure for the firm.” (p. 1088).
Related research has been provided by Core et al. (1999). They study the relationship between board- and ownership structure and the level of CEO compensation. One of the board variables they study is board busyness. Consistent with the National Association of Corporate Directors, they call a director busy when he/she has more than three board functions. They find that busy boards are associated with excessive CEO payment, providing evidence that busy boards provide less monitoring of the CEO and management, giving them opportunities to raise their wage scales more than in companies with no busy directors on the board.
director who is an indifferent or overtaxed monitor of top management, as suggested by investor activists, then the data are consistent with an association between less valuable appointments and CEO involvement.” (p. 1847)
A recent study has been conducted by Larcker et al. (2007). In their study on the effects of fourteen different variables associated with corporate governance, they find that firms with fewer busy directors exhibit superior future operating performance.
Other recent research has been provided by Ferris et al. (2003). For the year 1995 they collect data on more than 3000 firms and test whether or not there is a relation between service on multiple boards by a director or an executive and firm value. They find no correlation in their tests. They also do not find evidence that directors with multiple board functions shirk their responsibilities for service on board committees nor do they find statistically significant evidence of a relation between the amount of busy directors on a board and the likelihood that the company will be named in a securities fraud lawsuit. This appears to be strong evidence opposing the view that ‘overboarded’ directors shirk their responsibilities of overseeing the management of a company. Fich and Shivdasani (2006) raise objections to these findings however. They suggest that “… their (author: Ferris et al., 2003) methodological choices and econometric specification lead to low statistical power for detecting the relation that we document between performance and busy outside directors” Fich and Shivdasani perform the research that Ferris et al. (2003) did again, with a similar (not the same) set of data but a different methodology. They come to the conclusion that firms with busy boards do have significantly lower market-to-book ratios. On average, the market-to-book ratio of these firms is 4.2% lower.
Next to organizational performance, Fich and Shivdasani use another proxy for determining the quality of monitoring from outside directors. That proxy is the forced CEO turnover rate. They measure this after a 50% drop in industry-adjusted performance. Their results show that forced CEO turnover is more than six times higher when a board is not associated busy, than when it is filled with busy directors. Whether in these cases the CEO is to blame for performance and should be forced to turnover is not relevant for this discussion. They clearly show that busy directors on average shirk their responsibilities of overseeing the board and are therefore not as good monitors as non-busy directors.
This leaves us with two opposing views on the effect of directors serving on more than one board. In the next section I will try to bring these two views a little closer and come to hypotheses concerning this research.
2.2.3 Hypothesis formulation
The previous sections showed that directors are able to gain plenty of useful experience from taking up extra directorships (Zajac, 1996, Ferris et al., 2003, Harris and Shimizu, 2004, Perry and Peyer, 2005). This accumulated knowledge will transform directors in better decision makers and will have a positive impact on firm performance. Other literature on the contrary, suggests that this will overstretch a director’s time and attention and therefore will have a negative effect on the performance of the firm (Core et al., 1999, Shivdasani and Yermack, 1999, Fich and Shivdasani, 2006). The evidence provided by the supporters of the accumulated experience flow however, is stronger than that provided by the scholars who suggest that directors might overstretch themselves. The first group of evidence is in general linked more directly to the performance of the firm, there is more evidence suggesting this relation and the evidence leaves less space for discussion. Therefore I expect to find similar outcomes for the South African market:
2.3 Board size
Next to the number of directorships held by directors of a company, the total number of directors sitting on the board and their effect on firm performance is also subject of much debate in the literature. Evidence in the existing literature seems mixed and will be treated in the next sections.
2.3.1 Positive effects associated with larger boards
With the appearance of the resource dependency theory in the seventies another function of the board became more and more clear. This was the ability to partly control the environment and resources by adjusting the composition of the board (Dalton & Daily, 1999). In a research conducted by Pfeffer (1972) it was shown that the response of an organization to resource dependencies and regulatory pressures was the creation of larger boards, which were composed of more diversified members. Pfeffer therefore calls the board a “vehicle for dealing with problems of external interdependence and uncertainty” (p.219). Size is therefore important as it grants access to more diversified members, all having their own interdependencies which they can use in the advantage of the firm. Pearce II and Zahra (1992) also mention this function large boards can fulfill, and give some other effects as well. At first they mention that large boards permit adoption of multiple perspectives on corporate strategy and operations which is likely to lead to high financial performance. Larger boards also permit inclusion of directors with diverse educational and industrial experiences. Furthermore, large boards allow the representation of diverse stakeholders on the board, thereby enabling a firm to respond effectively to their demands. Lastly, CEO domination of the board is reduced by large boards, thereby giving directors an opportunity to exercise their independence from the CEO and exercise their power in governing the firm (p. 422).
In the literature however, there has been some criticism on the previous arguments which will be discussed in the next section.
2.3.2 Negative effects associated with larger boards
2.3.3 Empirical research on board size
In the empirical field, the relation between board size and firm performance has been studied on a number of occasions. The first scholar doing so was Yermack (1996). In an extensive research over an eight year period for 452 U.S. public corporations, he finds an inverse relation between board size and firm performance. These results have been confirmed by Eisenberg et al. (1998) for firms characterized by less separation of ownership and control, namely small and medium sized firms. This thus extends Yermack’s findings as it makes the negative relation between board size and firm performance valid on a broader scale. Mak et al. (2005) perform the same tests on a sample of Singapore and Malaysian firms and also come up with the same results, which lead to their conclusion that Yermack’s board size effects “transcends different corporate governance systems.” (p.315). In recent studies this negative relation between board size and firm performance has been found frequently, providing a broad range of evidence in support of the arguments treated in the previous section (E.g. Fich and Shivdasani, 2006; Larcker et al., 2007; Conyon, 1998).
Cheng (2008) also conducted research on the relation between board size and firm performance. He finds that firms with larger boards exhibit a lower variability of performance. This suggests that larger boards make more compromises due to communication and coordination problems.
Dalton and colleagues (1999) are less convinced with the notion that board size and firm performance are negatively related. They performed a meta-analysis combining data from 27 studies that related firm performance to board size. Their findings clearly show the existence of a relation between both, but the direction of this relation cannot be interpreted from their study. Di Pietra et al. (2008) study this relation for the Italian market, but cannot find any relation between the two. Coles et al. (2008) did find a relation between board size and firm performance. Their study provides some interesting insights. They found that complex firms, such as those that are diversified across industries, large in size or having a high leverage are likely to have greater advising requirements. Therefore, they found that the performance of these firms is higher when they have a large board of directors, particularly when there are outside directors in there, who possess relevant experience and expertise. Coles et al. also found that less complicated companies perform better when they have small boards. This suggests a U-shaped relationship between firm performance and board size, dependent on the firm’s level of complexity.
In a study conducted on the Ghanaian stock market, Kyereboah-Coleman (2006) found that larger boards have a positive effect on firm performance therefore providing evidence in support of the resource dependence view. Although the scale and scope of this study are not particularly broad, it may have implications for this research. Ghana and South Africa are both developing African countries and research on these countries is very thin.
2.3.4 Hypothesis formulation
In spite of the evidence provided by Kyereboah-Coleman (2006) most studies suggest a negative relation between board size and firm performance (Yermack, 1996, Mak et al., 2005, Larcker et al., 2007). This relation has been found for large, medium and small sized companies and for companies within countries with different corporate governance systems. It therefore seems valid to assume the same results will be found for the South African market and not to expect similar findings Kyereboah-Coleman found:
2.4 Board composition
The effects of the composition of the board have been extensively discussed by scholars. It is questioned what effects the number of inside, affiliated outside and unaffiliated outside directors have on the performance of the firm. It is reasoned that on the one hand, inside directors (insiders) are more familiar with the firm’s activities although on the other hand, outside directors (outsiders) may act as “professional referees” to ensure that competition among insiders stimulates actions consistent with shareholder value maximization. (Fama, 1980) All three groups of directors possess different skills and roles that might all be beneficial to the firm. These different roles will be discussed in the next sections.
2.4.1 Outside Directors
Early studies plainly described outside directors as directors who are not employees of the firm. All the other directors were called inside directors. Baysinger and Butler (1985) were the first to distinguish a third category that consisted of ‘affiliated outsiders’ or ‘grey’ directors. By this, directors who were currently not employed by the firm, yet with certain relations with the firm were described. These relations could exist in the form of a former employee, a relative, a supplier or a customer for example. Because of their relations with the company, these directors are not regarded as being totally independent. In this article they will be referred to either as grey, affiliated outsider, or dependent outsiders, whereas the term outsider means independent outside director.
Outside directors are generally associated with fulfilling two important roles on the board. These are the monitoring role and the advisory role (Fields and Keys, 2003). The advisory role is clear. Outside directors often serve as a director on more than one board. They gain knowledge and experience within different kinds of companies that grants them with reputations as good decision makers (recall section 2.1.1). Therefore they are in general able to provide the board with a broad range of advice, such as in the case of merger, dividend payout or major strategic changes. Booth and Deli (1999) underline the importance of this function. They find a positive relationship between the presence of a commercial banker on the board and firm debt. This suggests that adding a commercial banker in the board brings advice on debt, and not merely a monitoring role.
The monitoring role includes the selection of top executives, setting incentives to motivate executives to take actions consistent with shareholder wealth maximization, and evaluating the performance of executives to determine the size of bonuses and decide whether executives should be replaced or not. This monitoring role should resolve the agency problem between top management and shareholders. Although monitoring of the top management is the entire board’s responsibility, it is widely believed that outside directors are better suited to fulfill this task because of their independence. Outside directors may hold greater incentives to take actions consistent with shareholder wealth maximization since they have concerns about their reputation as good, independent decision makers, to take up additional directorships (Fama & Jensen, 1983). Another reason outside directors will perform their tasks in the interests of shareholders are legal obligations in the form of their duty of loyalty and their duty of care toward shareholders. Directors can be held liable for damages if they fail to meet these obligations (Hermalin & Weisbach, 1991).
on a board and the chances of financial statement fraud. He finds that no-fraud firms have boards with significantly higher levels of outside directors than fraud firms. Comparable research has been conducted by Helland & Sykuta (2005). They study the relation between the likelihood of being sued by shareholders and the composition of the board. Their findings suggest that boards with high proportions of insiders and grey directors have higher chances of being sued than those composed of more outside directors.
2.4.2 Inside Directors
The difference between inside and outside directors is that inside directors work as a fulltime employee of the firm. Insiders fulfill some important tasks in the board of which monitoring is one. Because of the fact that possible incompetence and shirking of top managers provides a position these directors can advance to, insiders will have incentives to monitor top-management’s behavior (Fields & Keys, 2003). The incentives for inside directors to monitor in an independent way are not as clear as those for outside directors, but nonetheless there are some.
Other than monitoring the board there are other functions the board fulfils. The formulation of corporate strategies and decision making are examples of that. Inside directors provide an important role in this process since they possess a great deal of firm specific information. Rosenstein & Wyatt (1990) notice that there is a trend of adding inside directors when specific technical knowledge is required for certain decisions. Insiders might be better informed because their daily occupation at the company. Bhagat and Black (2002) suggest that “perhaps independent directors will act more quickly than inside directors if something goes wrong. But they may do the wrong thing if their deliberations are not leavened by the information available to inside directors.” (p.264) Another reason inside directors get selected as board members, is because of the succession of the CEO. The moment the CEO nears retirement, firms tend to add inside directors, who are potential candidates to be the next CEO. It has also been observed that inside directors tend to leave the board after the change of a CEO, also indicating that these directors lost the contest for being the successor of the leaving CEO (Hermalin & Weisbach, 1988).
2.4.3 Grey Directors
Grey-, affiliated outsiders, or dependent outside directors are the third category of directors that can be distinguished. Whereas in 1950 almost 30 percent of the board consisted of grey directors, that percentage has decreased to less than 10 percent in 2005. (Gordon, 2008) Even though their importance seems to have declined it is still valuable to discuss their role in the board.
The role that outside directors fulfill gets more and more attention in recent years. Where in 1950 the percentage of outside directors in the boards of large public companies was around 20%, nowadays the percentage lays around 75% (Gordon, 2008). With this increasing interest in the function of outside directors, the role of outsiders seems to have become more important than the insider’s role. However, insiders possess some important values and information boards cannot function without. Therefore it seems important for firms to have both functions represented in the board.
Scholars have studied the ‘right’ composition and effects of both functions on firm performance extensively. These studies will be treated in the next section.
2.4.4 Empirical evidence
Two of the first scholars to directly investigate the relation between board composition and firm performance were Baysinger and Butler (1985). They find a positive relation between both and conclude that “the proportion of independent directors appearing on the board of major business corporations is a potentially important performance variable.” (p. 121) After Baysinger and Butler the literature in this field expanded. In their 1990 article, Rosenstein & Wyatt tried to determine the effects of putting an extra outside director on the board on firm value. Their results show that this effect is positive, but they warn that “…the positive effect associated with the appointment of an outside director is [no] evidence that outsiders are superior to inside directors. If appointments of inside and outside directors in general are intended to bring boards closer to their ideal sizes for particular situations, both types of announcements will be associated with positive abnormal returns.” (p. 190) In a later article, Rosenstein & Wyatt (1997) try to expand the previous found positive relation between adding insiders to the board and firm performance. In this research however, they find that adding an additional insider to the board has on average no effects on the reaction of the stock market. However, these stock price effects vary with the level of stockownership amongst directors. They find that the market reaction is significantly negative when the inside director owns less than 5 percent of common stock, and significantly close to zero when the insider owns between 5 and 25 percent. This suggests that organizations clearly benefit from adding an extra inside director whenever the interests of these insiders are aligned to the interests of shareholders, namely by providing them with the right amount of stock. This ought to solve the possible existence of agency problems between management and the owners.
In a study performed by Byrd and Hickman (1992), more evidence is offered suggesting the important role independent directors play. They analyze the role of boards of acquiring companies in tender offer bids and the stock price reaction after the bids. On average they find a drop in stock price of the acquiring firm, but this drop of stock price is significantly lower when the acquiring firm has a board consistent of at least 50 percent independent directors. This suggests that investors perceive firms with independent boards as better acquirers. However, their results are only valid up to the composition of 60% independent directors. After that, stock price drops increase again suggesting that all categories of board members; inside directors, affiliated outside directors, and independent outside directors, play an important role in guiding the firm.
performance again. In this study they found hints that greater board independence impairs firm performance and they are not able to find any evidence suggesting that more board independence leads to better performance. These results point in the direction of the importance of inside directors on a board. In a study performed by Hermalin and Weisbach (1991) a non-correlation between more board independence and firm performance is found. They suggest that board composition might in general not matter much for a firm’s performance.
Recently, Drymiotes (2007) performed more research on the positive role that insiders can play. He found that a less independent board can sometimes fulfill its monitoring role more effectively than a board that is fully independent. Inside directors are able to monitor agents before certain actions have been taken, while outside directors are only able to do this afterwards. Therefore inside directors provide a good effort monitoring these managers.
2.4.5 Hypotheses formulation
In the last decades there has been a shift towards more independent directors on a board. Especially in the ’60s and ‘70s their proportion expanded significantly (Baysinger & Butler, 1985). This period’s shift towards more independent directors generally resulted in higher firm performance (Baysinger & Butler, 1985, Rosenstein & Wyatt, 1990). It seems however that the recent attention independent directors get cannot be justified by empirical results. Some studies even suggest that the function of independent directors has been overemphasized in recent years and call for more insiders. Outside directors are believed to provide a better monitoring function (Beasley, 1996; Helland & Sykuta, 2005; Weisbach, 1988), but one should not forget that monitoring is just one of many functions the board fulfils. With a high proportion of outsiders on the board, these functions might be swamped by the monitoring function the outsiders provide and decrease firm performance. Since this study focuses on the year 2006, I therefore expect that the monitoring role of outsiders has been overemphasized and that the proportion of outside directors will have a negative impact on firm performance:
Hypothesis 3: The proportion of outside directors will be negatively related to firm
performance.
Since I suggest that the role of inside directors has been swamped by the outside function in recent years, I expect to find higher firm performance when more inside directors are on the board:
Hypothesis 3A: The proportion of inside directors will be positively related to firm
performance.
Since grey directors are neither associated with their monitoring role nor their specific information role, and that the assumption that they possess specific knowledge is not founded in previous literature, I expect them to have a negative effect on firm performance:
Hypothesis 3B: The proportion of grey directors will be negatively related to firm
2.5 Meetings
The last variable that will be examined in this study is the number of meetings held by a board of directors and the relation with firm performance. This relationship has not been widely examined in the existing literature which is odd, at least to some extent. There is a broad base of research available examining all kinds of board characteristics, resembling the ‘right’ board composition, the ‘right’ mix of incentives, the advisable board size, and so forth. Board meetings however, are the most important way for directors to show ‘what they are worth’. During these meetings they fulfill their tasks of monitoring, decision making and strategy setting. If someone would argue that a board fulfils an important role for the performance of the firm, it seems quite obvious that the meetings in which the board performs these tasks should be considered of major importance too.
As a result it seems reasonable to suggest that when a board meets more often, and therefore more of any individual director’s effort is offered, firm performance would benefit. This has also been suggested by Lipton & Lorsch (1992). They have some clear advices about board meetings; “Boards should meet at least bimonthly and each meeting should take a full day, including committee sessions and other related activities. One meeting each year should be a two or three day strategy session. Directors should also spend the equivalent of another day preparing for each meeting by reviewing reports and other materials sent to them in advance. This would mean that directors would mean that directors would be expected to spend more than 100 hours annually on each board, not counting special meetings and not counting travel time. We believe this much time is essential to allow directors properly to carry out their monitoring function. The additional meeting time will also have the salutary effect of strengthening the cohesive bonds among the independent directors.” (p.68)
Other than the benefits provided by the additional managerial time, there are also some costs involved with board meetings. These include managerial time, travel expenses and director’s meeting fees (Vafeas, 1999). These costs should not outweigh the benefits provided by additional board meetings, while consequently firm performance will suffer.
Jensen (1993) also mentions the role that board meetings fulfill. He recommends that boards should be relatively inactive in well-functioning organizations and that board meetings are only of importance when the organization’s internal control system is failing. This is quite the opposite of the advices proposed by Lipton & Lorsch.
Direct empirical evidence has solitarily been offered by Vafeas (1999). His findings support the arguments provided by Jensen. Vafeas performed research on more than 300 firms over a 5-year period. He finds that the annual number of board meetings is inversely related to firm value. Since his study covers a 5 year period he is able to study this relation comprehensively and determines that boards meet more often following poor performance. After these years of additional board meetings, firm performance increases again. This suggests that boards are reactive, rather than proactive. It also shows that a board’s ability to alter bad organizational performance into good organizational performance is indirect and takes a couple of years. If not, Vafeas would not have found an inverse relation between firm value and the annual number of board meetings.
Since this study on the South African market only focuses on one year’s data concerning board meetings, I will not be able to determine whether a high number of annual meetings follow poor prior performance. I am however able to notice whether the inverse relation between board size and firm performance holds:
Hypothesis 4: The total number of board meetings will be negatively related to firm
CHAPTER 3. RESEARCH DESIGN
3.1 Sample and Data description
This study focuses on companies registered on the Johannesburg Stock Exchange (JSE). A random selection has been made and 151 companies were selected. I was able to obtain annual reports from 94 of these companies, since the 57 other companies either do not show their annual reports on their websites or certain vital information was missing in these reports. This makes the final sample size 94. Data was collected on industry, total assets, number of directors, board meetings, director names, director’s position (inside/outside/grey) and the number of other directorships held by a director of the firm. With this data, Return on Asset (RoA), Return on Equity (RoE) and the market-to-book value (MtB) ratios have also been calculated.
The data on board characteristics has been collected for the year 2006 since it has the advantage of being recent and therefore making possible results and relations better comparable to the current situation. The availability of annual reports has also proven to be the highest for that year. As an additional measurement, RoA, RoE and MtB ratio have also been calculated for 2007. This gives me the opportunity to examine the long term effects of the four board characteristics on firm performance. All figures have been derived from annual reports except for the data about historic share prices used to calculate the market capitalization. This has been collected from the databases of SHARENET and MONEYWEB.
3.2 Variable definitions
Data has been collected and calculated, resulting in various variables that can be divided in groups of independent, dependent and control variables. In this section more intelligibility will be provided on how this process went and what choices have been made during this process.
3.2.1 Independent variables
The first independent variable used is the total number of directors (#DIR) sitting on a board. Since this is subject to changes during a year, I have chosen to only count and utilize the directors that were member of the board at the end of a company´s book year. Directors that left during the year were excluded from the database since they were generally replaced by new directors. Taking these directors into account would bias the total number of directors and therefore they have been excluded. Additionally, alternate directors were also excluded from this research, since they are only present whenever their companion is not available. The next variable taken from the annual reports is the number of meetings (#MEET) that have been held throughout the year. This variable is restricted to the number of meetings from the board itself. Annual meetings and committee meetings have not been included.
The proportions of inside, outside and grey directors have also been taken from the annual reports (%Out, %Ins, % Grey). These reports all present information regarding the independence of a director and whether a director has a full time duty in the company. Providing this information is obligatory for companies registered at the JSE since it is prescribed in the King II report. With this information, every director has been categorized either as inside, outside or grey.
without making exceptions between kinds of directorships, like the directorships in self-owned companies or in charity funds. The premise behind this is that any directorship will exploit a director’s time and provide some kind of experience for the director. However, there are obviously directorships that soak up more time and provide more useful experience than others, but this distinction cannot be made by making use of the provided data and therefore it seems reasonable to take all directorships into account. Past directorships have obviously not been counted. All the individually possessed directorships have been added up and transformed into the percentage of directors that hold three or more directorships for all three groups of directors (%BuOu, %BuIn, %BuGr).
3.2.2 Dependent variables
Next to these independent variables some calculations have also been made to display a company’s performance in the form of dependent variables. I employed both market and accounting based measures. These are the Return on Asset (RoA), the Return on Equity (RoE) and Market-to-Book ratio (MtB).
The RoA has been taken as a measurement of company performance because it tells us how many dollars of earnings a company derives from each dollar of owned assets. The calculations used for the RoA are as following: NET INCOME + INTEREST EXPENSE / TOTAL ASSETS.
To calculate RoE the next formula was used: NET INCOME / SHAREHOLDER EQUITY. This ratio compares how much profit a company earned with the total amount of shareholder equity. It is an important measurement as it explains how able a company is in generating profit internally and therefore gives viable information about growth opportunities.
The reason both these accounting based measurements have been implemented is that most managers receive incentives based on these accounting figures and therefore provide an important focus for managers. However, both RoA and RoE might be biased by a company’s industry, and therefore a third performance measurement has also been applied. This is the market-to-book ratio (MtB). The MtB ratio will tell us how investors value a company in comparison to the company’s liquidation value. When this ratio is higher than one, investors perceive more value in a company than what is on the balance sheet. This might imply that a company has either goodwill or growth opportunities which have been taken into account by the market. The MtB ratio is calculated as following: (MARKET CAPITALIZATION + (BOOK VALUE OF ASSETS – TOTAL EQUITY)) / BOOK VALUE OF ASSETS. The reason this calculation has been chosen is that earlier research on the relation between board variables and firm performance makes use of this calculation too on a number of occasions (Perry & Peyer, 2005; Fich & Shivdasani, 2006). Using this calculation will make results better comparable to previous research. Furthermore, this formula was easily applicable on the data derived from the annual reports. Information about historic share prices to calculate the market capitalization has been found using the databases from MONEYWEB and SHARENET.
3.2.3 Control variables
industry (7). Six dummy variables have been applied to differentiate between the different industries since the wide scale of this research might have influence on the relation between the board characteristics and firm performance. The service industry has arbitrary been chosen as the hold out group, to which the other industries will be compared.
In many academic studies though, the finance, insurance and real estate industry, is a group that has either been excluded or separated. The premise behind this decision lies in the fact that this industry is diversified from other industries and that including it would bias the total sample, and therefore the results of the analyses. At first sight, this looks like sensible reasoning. Nevertheless, there might be more industries that have differing characteristics, and thus controlling all industries for significant differences is of great value for unbiased results.
The second control variable that has been used is a company’s size. This has been measured using the book value of the Total Assets (TA). Data has been collected directly from a company’s annual report and figures have been transformed in South African Rands (ZAR) when necessary, using historic exchange rates from the date the report was published. Table 1 gives a summary of all the variables.
Independent Variables
Dependent Variables
Control Variables
No. of Directors (#Dir) RoA ‘06 Firm size (TA ’06, ’07) Meeting Frequency (#Meet) RoE ‘06 Industry (IND)
Pct. Outsiders (%Out) MtB ‘06 Pct. Insiders (%Ins) RoA ‘07
Pct. Grey (%Grey) RoE ‘07
Pct. Busy Outsiders (%BuOu) MtB ‘07 Pct. Busy Insiders (%BuIn)
Pct. Busy Grey (%BuGr)
Table 1. Summary of variables
3.3 Methodology
As this study focuses on the relationship between four different board variables and firm performance it is sensible to give a description of the methods used to examine these relations. This will be done in the next four sections.
3.3.1 Number of directorships
is biased, as for their opinion inside and grey directors sit on the board for other reasons than monitoring. They also find that using an average number of directorships is not accurate because of the ‘wide dispersion in the number of board seats held by outside directors’ (p.694). They therefore classify a board as busy when more than half of the outside directors sit on three or more boards.
Where the research by Fich and Shivdasani (2006) provides evidence that firms with busy boards exhibit lower performance, the study by Ferris et al. (2003) shows exactly the opposite. This can be explained by the differences in methodology and therefore, for this research too, methodology is of major importance.
The way busy boards have been measured in this study is defined as; boards in which more than 50 percent of the outside directors sit in three or more boards. I have chosen to use this definition since I agree with the notion that it is inaccurate to use averages. In my sample the maximum number of directorships possessed by one director is fifteen. If this director would be accompanied in the board by six other member having only one directorship in total, the average number of directorships would be 3, which would give the false impression that the board is quite busy. Labeling a board busy when more than 50 percent of the outside directors possess three or more directorship will avoid the latter inaccuracies. Therefore I follow the methodology used by Fich and Shivdasani (2006). However, I also find it arguable that busy inside and grey directors can have substantial influence on firm performance. Inside and grey directors too can suffer from a lack of time to perform tasks, and on the other hand too can learn from additional directorships. The King II report actually endorses inside directors to take up additional directorship as long as “they are not detrimental with their immediate responsibilities as an executive in the company” (IoD, 2002; p.57). Therefore in this study it will also be measured what effects can be seen when 50 percent of a board’s inside directors possess three or more directorships and what the effects are when 50 percent or more of the grey directors possess these three or more directorships. The main definition of busy boards in this study resides with 50 percent of the outside directors possessing more than three directorships. However studying the effects of busy inside directors and busy grey directors will possibly give more insights in the relationship between the number of directorships and firm performance.
The first set of tests that will be conducted are univariate tests, examining the relation between every individual independent variable and the dependent variables. Next to these univariate tests, a more comprehensive regression model will be drawn, containing all the independent and dependent variables. Finally, the control variables firm size and industry will be applied to the latter model to reveal more insights in the relationship between board busyness and firm performance.
3.3.2 Board Size
