Empirical Study On Board Stability And Performance

Corporate governance mechanisms, especially board-related issues, have drawnattention from both academia and business community all over the world. This papertries to conduct an in-depth research on the relationship between board stability andcorporate performance based on previous studies.The paper screens out262Chinese listed firms which had their IPOs before Dec.31,1999. The study runs regression analyses on the panel data of these firms from2001to2010. The empirical results indicate that state-owned companies andnon-state-owned ones seem to have distinct board mechanisms. For state-owned firms,the significant connections between board stability and corporate performances statethat previous poor (good) performances will lead to board instability (stability). Inaddition, the ratio of shares held by top10shareholders, the ratio of independentdirectors in board and change of board chair have significantly correlations with boardstability. However, there are no clear evidences proving that similar relationshipbetween board stability and performance exists among non-state-owned companies.What’s more, current board stability has significant impact on performance whileLagged board stability shows no significant connection. The variables of current andlagged leverage rates and the growth rate of total assets are also significantly relatedto corporate performance.This paper conducts robust tests by introducing new variables such as the returnon total assets, the ratio of shares held by insiders, the current and lagged growth ratesof revenues and so forth. The results are consistent with previous findings.