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Aligned, Informed, and Decisive: Characteristics of Value-Creating Boards

This paper explores how board composition influences the conflict of interest between principals and agents, the production of information for monitoring and advice, and the board's effectiveness as a decision-maker. Paying particular attention to the board's independence, information production, and diversity, we exploit unusually rich data from an unexplored institutional environment to estimate models that control for endogeneity. We find that the firm's performance is higher when directors own equity in the firm, have wide information networks to other firms, and when the board has low gender diversity, no employee directors, and small size. No association is found between performance and independence. Board mechanisms are often endogenously determined, both by each other and by the firm's performance. These characteristics of value-creating boards are consistent with theoretical predictions and the limited evidence from other institutional regimes, but lend no support to popular opinion and the current politics of corporate governance.