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Influence of board of directors on firm performance: Analysis of family and non-family firms

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Abstract

This article analyses how board structure can affect both financial and social performance, comparing family and non-family firms. Our theoretical framework is based on the integration of the agency theory, traditionally used in the analysis of the impact of the board on the firm’s financial performance, with the stakeholder theory, which is more appropriate in the analysis of the social aspects of the firm. Three main aspects are addressed: the analysis of the firm’s social performance; the integration of agency theory with stakeholder theory; and the study of the specific characteristics of family firms’ boards. The research confirms that neither the agency theory nor the stakeholder theory is fully able to explain on its own, without the other, the link between board structure and firm performance. The article has both practical and theoretical implications for the firm’s activities and increases our knowledge about the relationship between the board and firm performance.

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Notes

  1. The ‘organicistic’ vision spread in the years following World War I (Ackoff, 1981) and still finds advocates in different cultural contexts (Landier, 1987; De Geus, 1997).

  2. There are several empirical studies that have investigated the possible relationship between social and financial performance. However, results are contradictory (Griffin and Mahon, 1997; Preston and O’Bannon, 1997).

  3. Developed by Tobin (1969), this ratio compares two different valuations of the same physical asset: the market value of a company’s stock and the equity book value of the same company. It can be used to reflect the ‘value added’ of intangible factors such as reputation or governance.

  4. In June 2009, the name of the index changed from the FTSE MIB Index to the S&P/MIB 40 Index, and includes the 40 most liquid and capitalized Italian companies.

  5. Data required for this study is not available for other firms quoted on the S&P/MIB 40 and other years.

  6. Reputation ratings (such as the Fortune Index) or surveys of managers, financial analysts, directors and students come from respondents perceptions, often very different, and they suffer from excessive subjectivity. The information provided by firms, like that in a social report, could be unreliable because of lack of knowledge of the criteria for inclusion and omission of information. Moreover, the scales constructed on the basis of this information to qualitatively assess social performance could be affected by the objectives of the researcher. The quantitative measurements (such as corporate philanthropy and amount of pollutant emissions) are indirect and unreliable indicators of overall social performance, and they may be applied only for a limited sample of firms.

  7. The ‘significance criteria’ were used as the entry requirement. According to these criteria, only the variables that contributed significantly to the model fit were included in the regression model. The individual contribution of a variable to the model fit was established by testing, from the partial correlation coefficients, the hypothesis of independence between that variable and the dependent variable. The significance criterion applied was that the introduced variable was significant at the 5 per cent level (10 per cent for the probability of taking the variable out of the model). Likewise, the increase in the R2 value as a result of including the variable in the model had to be statistically different from zero.

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  1. Department of Economics, Business and Finance, University of Palermo, Parco D’Orleans, 90145, Palermo, Italy

    Sergio Paternostro

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  1. Patricia Bachiller
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  2. Maria Cleofe Giorgino
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  3. Sergio Paternostro
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Correspondence to Sergio Paternostro.

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The study has been carried out with the financial support of the Spanish National R&D Plan through research project ECO2010-17463.

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Bachiller, P., Giorgino, M. & Paternostro, S. Influence of board of directors on firm performance: Analysis of family and non-family firms. Int J Discl Gov 12, 230–253 (2015). https://doi.org/10.1057/jdg.2014.2

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