1 Department of Economics and Business Economics, Aarhus BSS, Aarhus University2 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
OBJECTIVES AND RESEARCH QUESTIONS: The purpose of this study is to examine if “board independence” of listed companies as one of the prime Corporate Governance mechanisms affect firm performance in a two-tier setting in a smaller European country, Denmark. To ensure an appropriate analysis, the entire population formed the basis for our analyses, i.e. ALL Danish companies listed on the national Danish Stock Exchange. DATA & METHODS: From the global based ORBIS-database we selected all non-foreign companies listed on the Nasdaq OMX Nordic, Copenhagen, i.e. 151 companies in December 2012. We chose financial data from last available year in ORBIS where they were available. In the very few occasions where (some of the) data was missing, we hand collected the needed remaining data from the companies’ annual reports. Concerning the Corporate Governance data used to reflect the board independence, these were retrieved from different sections in the corresponding annual reports, i.e. from different notes and different parts of the management commentary. We used structured equations models (IBM SPSS, AMOS 19) to model the hypothesized relationship between board independence and performance. For our detailed analyses we used “classical” financial key performance indicators, like Tobin’s q, ROIC, ROE, Price-to-Book ratio, and the like. For board independence we used a number of different proxies for board independence, like number of management board members in supervisory board, remuneration committee, nomination committee, supervisory boards’ domination by large shareholders, and the like. RESULTS: Since our hypothesis of a clear relationship between board independence and key performance indicators were stated beforehand, the results reflect the modelling of our identified manifest board independence indicator proxies and several manifest key performance indicators. The findings suggest that board independence could be seen as a positive mechanism in Danish companies since the firm performance seems (highly) related to board independence. The findings also show that both tiers contribute to supporting the hypothesized relationship. CONCLUSIONS: The positive relationships identified in this study contribute to a better understanding of the circumstantial relationship between good Corporate Governance and good corporate performance in a two-tier setting.
Corporate Governance; Transparency; Boar d Member Independence; Two Wier Board Structure