Munich Personal RePEc Archive

Does the composition of the board matter? On the relationship between corporate governance and value creation

Rivo-López, Elena and Villanueva-Villar, Mónica and Lago-Peñas, Santiago (2014): Does the composition of the board matter? On the relationship between corporate governance and value creation.

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Abstract

This paper studies the effect of corporate governance on value creation for listed companies. It also examines whether the fact that a business is owned or partly owned by a family has an impact on this variable as well as the behavior of companies at different stages of the economic cycle. Our research makes use of a dataset consisting of the companies in the IBEX-35 for the period 2005/12. It carries out a sub-analysis for the periods 2005-2008 and 2009-2012, to evaluate the effect of the crisis. The results indicate that neither the presence of women on boards of directors nor family ownership affect value creation in the companies analyzed. The size of the entity revealed a statistically significant and negative coefficient for the entire period under analysis. However, recorded profitability revealed a statistically significant and positive coefficient only for the pre-crisis period and not for the later period. In contrast, board size and the percentage of independent board members are both relevant and reveal a positive coefficient for the crisis period. Although its starting point is agency theory, complemented by resource dependence theory, the paper resorts to the sociological theory of the strength of weak ties, to explain its results. Gender diversity and family ownership do not seem to have an impact on value creation, while the level of independence of the governance bodies has a positive effect throughout the crisis period. This result supports the notion that board structure is much more relevant in difficult and challenging times. In addition to increasing the number of independent directors, it is also crucial that a minimum percentage be reached in order to influence the board and generate value. According to the empirical evidence, in times of crisis, it seems advisable and more efficient to increase board size with more independent directors, regardless of gender. Gender equality does not harm value creation.

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