The Effect of Board’s Quality on Performance: An Indian Evidence

The value creation and shareholders protection of a firm is largely influenced by the quality and the structures of the board, contributing on various dimensions of the firm’s performances. We measure the comprehensive relation between the qualities of the boards with performance of the firm, by ranking the board in terms of score defined by self-created index for 150 Indian firms in terms of four broad categories of the board quality. Drawing on the classical agency theory, various statistical models of univariate and multivariate nature were used to analyze the impact of board's quality on firm performance. Using two broad categories of performances, traditional accounting-based measures (like Price to book value, market to sales ratio) and value creation-based measures we establish a close association amid the board efficiency and the performances of the firm. Moreover, the association emerges stronger when the efficiency effect is captured by market value performance measures in the form of Economic value added, Market value added and Cash flow value of the company. The result provides a strong support for the previously inconclusive attempts, especially in the light of a self-created and wide index covering multiple aspects for the board’s quality.