In this study, we examine how the concentration of authority within the board of directors affects the variability of firm performance. Using directors' committee assignments as a proxy for decision-making power, we develop two unique measures of board concentration of authority. We find that firms with greater concentration of power within their boards have higher variability in firm performance. In additional tests, we demonstrate that our results are not driven by endogeneity bias. Finally, we also show concentrated boards adopt more extreme corporate strategies, providing several different mechanisms through which board concentration of power affects firm performance volatility.
Bibliographical noteFunding Information:
We would like to thank Diane Del Guercio, Trang Doan, Beni Lauterbach, Xiaoding Liu, Alexander Merz, Tu Nguyen, Hieu Phan, Laura Starks, Van Vu, and seminar participants at the 2017 California Corporate Finance Conference, the 2018 European Financial Management Association Annual Meeting, 2019 Vietnam International Conference in Finance, 2019 Asian Finance Association Annual Meeting, and 2019 Financial Management Association Annual Meeting for their helpful comments and discussions. We are also grateful to two anonymous referees and the Editor, William Megginson. Finally, we thank Giang Ho and Carl-Emmanuel Coffie for excellent research assistance.
© 2019 Elsevier B.V.
- Board of directors
- Corporate governance
- Decision-making power
- Firm performance