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Board involvement in corporate performance: evidence from a developing country

Chaminda Wijethilake (Department of Management & Finance, General Sir John Kotelawala Defence University, Ratmalana, Sri Lanka)
Athula Ekanayake (Department of Management Studies, University of Peradeniya, Peradeniya, Sri Lanka)
Sujatha Perera (Department of Accounting and Corporate Governance, Macquarie University, Sydney, Australia)

Journal of Accounting in Emerging Economies

ISSN: 2042-1168

Publication date: 10 August 2015

Abstract

Purpose

The purpose of this paper is to provide insights into the understanding of the relationship between board involvement and corporate performance within the context of developing countries.

Design/methodology/approach

A number of aspects related to board involvement, including board’s shareholdings, frequency of board meetings, availability of independent board committees, board size, CEO duality, and CEO is being a promoter, were examined in order to explore their influence on corporate performance measured in terms of earnings per share. The study mainly draws on agency theory, and is supplemented by resource dependence and stewardship theories. Multiple regression analysis is utilized to analyze the data gathered from a sample of 212 publicly listed companies in 20 industries in the Colombo Stock Exchange in Sri Lanka.

Findings

Among the aspects of board involvement considered, board’s shareholdings, board meetings frequency, independent committees, and CEO duality showed a positive influence on corporate performance. However, two other aspects, namely CEO being a promoter, and the size of corporate boards showed a negative effect. The findings also suggest that the use of multiple theories, rather than depending on a single theory, is more effective in understanding the relationships examined in this study. Further, the study highlights the need to be cautious in utilizing the theories that are more applicable to matured western economies when analyzing issues relating to developing countries.

Originality/value

This study makes an original contribution to corporate governance literature by examining the relationship between board involvement and corporate performance in a developing country, namely Sri Lanka. The study also adds to the existing literature by utilizing multiple theories to examine the issue under investigation.

Keywords

Acknowledgements

An earlier version of this paper was presented at the sixth International Management Accounting Conference held in Malaysia in March 2012.

Citation

Wijethilake, C., Ekanayake, A. and Perera, S. (2015), "Board involvement in corporate performance: evidence from a developing country", Journal of Accounting in Emerging Economies, Vol. 5 No. 3, pp. 250-268. https://doi.org/10.1108/JAEE-12-2012-0050

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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