en pl
en pl

Central European Management Journal

Show issue
Year 2017 
Volume 25 
Issue 4

Supervisory Board Composition and Firm Financial Performance:A Case of Companies Listed on the Warsaw Stock Exchange

Dorota Dobija
Kozminski University

Grygorii Kravchenko
Kozminski University

2017 25 (4) Central European Management Journal

DOI 10.7206/jmba.ce.2450-7814.208

Abstract

Purpose: This paper investigates the relationship between the internal governance structure and fnancial performance of Polish companies. Ensuring diversity of corporate boards has been on the agenda of various regulators on a national and international level as it is generally expected corporate boards that are more diverse will be more competent and more effective monitoring managerial actions, and therefore positively impact company performance.

Methodology: This paper uses a sample of companies listed on the Warsaw Stock Exchange and examines the two main compositional features of company supervisory boards (independence and experience) and their practices by companies. We also investigate the effect of diversity on company performance. As our empirical methodology, we use linear regression analysis.

Findings: Our fndings support the proposal that diversity matters, especially in terms of the presence of experienced members on supervisory boards, and that such diversity positively affects fnancial results. In addition to the main fnding, the results of the study indicate also the importance of the ownership structure. Family frms and companies with a higher level of gearing are more likely to perform less effectively.

Originality: To date, research on the association between supervisory board diversity and fnancial performance in either the Polish or Central and Eastern European capital markets has been limited. The paper also points to the importance of having experienced members on a company’s supervisory board. Independent members on supervisory boards do not seem to have a similar association.

References

  1. Abbott, L.J., Parker, S., Peters, G.F. and Raghunandan, K. (2003). The association between audit committee characteristics and audit fees. Auditing: A Journal of Practice and Theory, 22(2): 17–32, http://dx.doi.org/10.2308/aud.2003.22.2.17 [Google Scholar]
  2. Aguilera, R.V., Filatotchev, I., Gospel, H. and Jackson, G. (2008). An organizational approach to comparative corporate governance: Costs, contingencies, and complementarities. Organization Science, 19(3): 475–492, http://dx.doi.org/10.1287/orsc.1070.0322 [Google Scholar]
  3. Andrzejewski, M. and Grabiński, K. (2016). Wpływ jakości systemu nadzoru właścicielskiego na sytuację finansową spółek giełdowych w czasach kryzysu finansowego – przegląd badań empirycznych. Studia Ekonomiczne, 268: 9–19. [Google Scholar]
  4. Beasley, M.S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting Review, 71(4): 443–465. [Google Scholar]
  5. Bédard, J., Chtourou, S.M. and Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice and Theory, 23(2): 13–35, http://dx.doi.org/10.2308/aud.2004.23.2.13 [Google Scholar]
  6. Bohdanowicz, L. (2014). Managerial Ownership and Intellectual Capital Efficiency: Evidence From Poland. China–USA Business Review, 13(10): 626–635. [Google Scholar]
  7. Bøhren, Ø. and Strøm, R.Ø. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance and Accounting, 37(9–1 0), 1281-1308, http://dx.doi.org/10.1111/j.1468-5957.2010.02222.x [Google Scholar]
  8. Campbell, K. and Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451, http://dx.doi.org/10.1007/s10551-007-9630-y [Google Scholar]
  9. Carcello, J.V. and Neal, T.L. (2000). Audit committee composition and auditor reporting. The Accounting Review, 75(4), 453–467, http://dx.doi.org/10.2308/accr.2000.75.4.453 [Google Scholar]
  10. Carter, D.A., D'Souza, F., Simkins, B.J. and Simpson, W.G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414, http://dx.doi.org/10.1111/j.1467-8683.2010.00809.x. [Google Scholar]
  11. Chan, A. M. Y., Liu, G. and Sun, J. (2013). Independent audit committee members’ board tenure and audit fees. Accounting and Finance, 53(4), 1129–1147, http://dx.doi.org/10.1111/j.1467-629X.2012.00490.x. [Google Scholar]
  12. Chau, G. and Leung, P. (2006). The impact of board composition and family ownership on audit committee formation: Evidence from Hong Kong. Journal of International Accounting, Auditing and Taxation, 15(1): 1–15. [Google Scholar]
  13. Chou, H.I., Chung, H. and Yin, X. (2013). Attendance of board meetings and company performance: Evidence from Taiwan. Journal of Banking and Finance, 37(11), 4157-4171, http://dx.doi.org/10.1016/j.jbankfin.2013.07.028. [Google Scholar]
  14. Cucculelli, M. and Micucci, G. (2008). Family succession and firm performance: Evidence from Italian family firms. Journal of Corporate Finance, 14(1): 17–31, http://dx.doi.org/10.1016/j.jcorpfin.2007.11.001. [Google Scholar]
  15. Daily, C.M. and Dalton, D.R. (1993). Board of directors leadership and structure: Control and performance implications. Entrepreneurship: Theory and Practice, 17(3): 65–82. [Google Scholar]
  16. Deli, D.N. and Gillan, S.L. (2000). On the demand for independent and active audit committees. Journal of Corporate Finance, 6(4): 427–445, http://dx.doi.org/10.1016/S0929-1199(00)00016-X. [Google Scholar]
  17. Dobija, D. and Klimczak, K.M. (2010). Development of accounting in Poland: Market efficiency and the value relevance of reported earnings. The International Journal of Accounting, 45(3), 356–374, http://dx.doi.org/10.1016/j.intacc.2010.06.010. [Google Scholar]
  18. Duchin, R., Matsusaka, J.G. and Ozbas, O. (2010). When are outside directors effective?. Journal of Financial Economics, 96(2): 195–214, http://dx.doi.org/10.1016/j.jfineco.2009.12.004 [Google Scholar]
  19. Erhardt, N.L., Werbel, J.D. and Shrader, C.B. (2003). Board of director diversity and firm financial performance. Corporate Governance: An International Review, 11(2): 102–111, http://dx.doi.org/10.1111/1467-8683.00011 [Google Scholar]
  20. Felo, A.J., Krishnamurthy, S. and Solieri, S.A. (2003). Audit committee characteristics and the perceived quality of financial reporting: an empirical analysis, http://dx.doi.org/10.2139/ssrn.401240 [Google Scholar]
  21. Finkelstein, S. and Hambrick, D.C. (1996). Strategic leadership: Top executives and their effects on organizations. West Publishing Company. [Google Scholar]
  22. García-Ramos, R. and García-Olalla, M. (2014). Board independence and firm performance in Southern Europe: A contextual and contingency approach. Journal of Management and Organization, 20(3): 313–332, http://dx.doi.org/10.1017/jmo.2014.23 [Google Scholar]
  23. Gîrbină, M.M., Albu, N. and Albu, C.N. (2012). Corporate governance disclosures in Romania. In: Board Directors and Corporate Social Responsibility (pp. 122–141). Palgrave Macmillan UK. [Google Scholar]
  24. Hardi, P. and Buti, K. (2012). Corporate governance variables: lessons from a holistic approach to Central-Eastern European practice. Corporate Governance: The International Journal of Business in Society, 12(1): 101–117, http://dx.doi.org/10.1108/14720701211191364 [Google Scholar]
  25. Herdjiono, I. and Sari, I.M. (2017). The Effect of Corporate Governance on the Performance of a Company. Some Empirical Findings from Indonesia. Journal of Management and Business Administration, 25(1): 33–52. [Google Scholar]
  26. Hillman, A.J. and Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3): 383–396, http://dx.doi.org/10.2307/30040728 [Google Scholar]
  27. Horváth, R. and Spirollari, P. (2012). Do the board of directors’ characteristics influence firm’s performance? The US evidence. Prague Economic Papers, 4: 470–486, http://dx.doi.org/10.18267/j.pep.435 [Google Scholar]
  28. Jackling, B. and Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4): 492–509, http://dx.doi.org/10.1111/j.1467-8683.2009.00760.x [Google Scholar]
  29. Klapper, L.F. and Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5): 703–728, http://dx.doi.org/10.1016/S0929-1199(03)00046-4 [Google Scholar]
  30. Knyazeva, A., Knyazeva, D. and Masulis, R. W. (2013). The supply of corporate directors and board independence. The Review of Financial Studies, 26(6): 1561–1605, http://dx.doi.org/10.1093/rfs/hht020. [Google Scholar]
  31. Koładkiewicz, I. (2011). ‘Przewodniczący rady dyrektorów/rady nadzorczej – europejskie dobre praktyki nadzoru korporacyjnego a polska praktyka działania.’ Management and Business Administration. Central Europe, 5/2011 (167): 65–82. [Google Scholar]
  32. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1): 3–27, http://dx.doi.org/10.1016/S0304-405X(00)00065-9 [Google Scholar]
  33. Mahadeo, J.D., Soobaroyen, T. and Hanuman, V.O. (2012). Board composition and financial performance: Uncovering the effects of diversity in an emerging economy. Journal of Business Ethics, 105(3), 375–388, http://dx.doi.org/10.1007/s10551-011-0973-z [Google Scholar]
  34. Muth, M. and Donaldson, L. (1998). Stewardship theory and board structure: A contingency approach. Corporate Governance: An International Review, 6(1): 5–28, http://dx.doi.org/10.1111/1467-8683.00076 [Google Scholar]
  35. Nicholson, G.J. and Kiel, G.C. (2007). Can directors impact performance? A case‐based test of three theories of corporate governance. Corporate Governance: An International Review, 15(4): 585–608, http://dx.doi.org/10.1111/j.1467-8683.2007.00590.x [Google Scholar]
  36. Pearce, J.A. and Zahra, S.A. (1992). Board composition from a strategic contingency perspective. Journal of Management Studies, 29(4): 411–438, http://dx.doi.org/10.1111/j.1467-6486.1992.tb00672.x [Google Scholar]
  37. Pucheta‐Martínez, M.C. and De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context. Corporate Governance: An International Review, 15(6): 1394–1412, http://dx.doi.org/10.1111/j.1467-8683.2007.00653.x [Google Scholar]
  38. Pucheta-Martínez, M.C. and García-Meca, E. (2014). Institutional Investors on Boards and Audit Committees and Their Effects on Financial Reporting Quality. Corporate Governance: An International Review, 22: 347–363, http://dx.doi.org/10.1111/corg.12070 [Google Scholar]
  39. Rajagopalan, N. and Zhang, Y. (2008). Corporate governance reforms in China and India: Challenges and opportunities. Business Horizons, 51(1), 55–64, http://dx.doi.org/10.1016/j.bushor.2007.09.005 [Google Scholar]
  40. [Google Scholar]
  41. Robins, J. and Wiersema, M.F. (1995). A resource‐based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and corporate financial performance. Strategic Management Journal, 16(4): 277–299, http://dx.doi.org/10.1002/smj.4250160403 [Google Scholar]
  42. Rudolf, S. (2010). Oportunizm i próby jego ograniczania w nadzorze korporacyjnym. Master of Business Administration, 18(3): 8–17. [Google Scholar]
  43. Sharma, V.D. and Iselin, E.R. (2012). The association between audit committee multiple-directorships, tenure, and financial misstatements. Auditing: A Journal of Practice and Theory, 31(3): 149–175, http://dx.doi.org/10.2308/ajpt-10290 [Google Scholar]
  44. Słomka-Gołębiewska, A. and Urbanek, P. (2016). “Corporate boards, large blockholders and executive compensation in banks: evidence from Poland”. Emerging Markets Review, 28: 203–220. [Google Scholar]
  45. Vafeas, N. (2005). Audit committees, boards, and the quality of reported earnings. Contemporary Accounting Research, 22(4): 1093–1122, http://dx.doi.org/10.1506/1QYN-2RFQ-FKYX-XP84 [Google Scholar]
  46. WSE (2015). Best Practice for GPW Listed Companies 2016, http://static.gpw.pl/pub/files/PDF/RG/DPSN2016_EN.pdf. [Google Scholar]
  47. Zaman Groff, M. and Valentinčič, A. (2011). Determinants of voluntary audit committee formation in a two-tier board system of a post-transitional economy – the case of Slovenia. Accounting in Europe, 8(2): 235–256. [Google Scholar]

Full metadata record

Cite this record

APA style

Dobija, D. , & Kravchenko, G. . (2017). Supervisory Board Composition and Firm Financial Performance:A Case of Companies Listed on the Warsaw Stock Exchange. Central European Management Journal, 25(4), 75-95. https://doi.org/10.7206/jmba.ce.2450-7814.208 (Original work published 2017)

MLA style

Dobija, D. , and G. Kravchenko. “Supervisory Board Composition And Firm Financial Performance:a Case Of Companies Listed On The Warsaw Stock Exchange”. 2017. Central European Management Journal, vol. 25, no. 4, 2017, pp. 75-95.

Chicago style

Dobija, Dorota , and Grygorii Kravchenko. “Supervisory Board Composition And Firm Financial Performance:a Case Of Companies Listed On The Warsaw Stock Exchange”. Central European Management Journal, Central European Management Journal, 25, no. 4 (2017): 75-95. doi:10.7206/jmba.ce.2450-7814.208.