What is it about?
Impact of independent director on financial performance in highly concentrated ownership remains ambiguous. We have shown the evidence in an emerging market context - India that this relationship does not hold true. Contrary to the beliefs that emerging economies have weak governance and slight improvement might enhance performance did not hold true in India.
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Why is it important?
Contrary to the popular belief that the presence of independent directors enhance financial performance, we find that in economies characterized by concentrated shareholding, this does not hold. The study has implications for the formulation of regulation related to appointment of independent directors and the extent of their representation on the board for them to be effective. Further, the proportion of independent directors on the board of the firm is influenced by the trade-off between the cost of having independent directors on the board versus the benefits to the firm and society.
Perspectives
Writing this piece with collaborators around the world was interesting as we could discuss the varied lens prevalent in our economies and then jointly create a worthwhile read about the Indian realities. Future Research Areas: 1. Is it worthwhile to follow the anglo saxon models or we need to understand our agency problems and create mechanisms accordingly. 2. Is performance the only measure why independent directors are brought on the board? 3. What do independent directors gain by being on the boardroom in spite of a low hanging fruit (in terms of remuneration)?
Dr Arunima Haldar
S.P. Jain Institute of Management and Research
Read the Original
This page is a summary of: Corporate performance: does board independence matter? - Indian evidence, International Journal of Organizational Analysis, February 2018, Emerald,
DOI: 10.1108/ijoa-12-2017-1296.
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