Board effectiveness : the evidence from firm performance & risk

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Bhattarai, Sagar
University of Lethbridge. Faculty of Management
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Lethbridge, Alta. : University of Lethbridge, Faculty of Management
In this study I study the effect of board effectiveness, measured by Board Shareholder Confidence Index (BSCI) on firm performance and risk. I find that there is modest positive relationship between BSCI total scores and firm performance, which is similar to the earlier findings. More importantly, I show a strong relationship between board effectiveness ratings and firm risk. This relationship is tested using a panel regression, a two stage least square and simultaneous equation modelling. The findings are robust to all three econometric techniques. I further explore the relationship between individual sub-scores and find similar results in sub-score analyses. The relationship holds using multiple measures of risk and return, giving us a comprehensive picture of the hypothesized relationship.
board of directors , corporate governance , ratings , S&P/TSX composite index