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Board effectiveness, conglomerate diversification, and firm performance: The tunisian case

Abstract This paper investigates the link between board structure and firm performance. The impact of conglomerate diversification on the relationship between board effectiveness and firm performance is also examined. Boards of director effectiveness, including board composition, board size, institutional ownership, and aspects of board leadership including CEO duality are addressed in the Tunisian context. The study employs a dynamic model to study twenty-eight non-banking companies listed on the Tunis Stock Exchange over the period 1997–2003. The empirical results are mixed and are consistent with previous studies particularly in the Tunisian context. Evidence was found that conglomerate diversification is negative and statistically significant to both board effectiveness and firm performance, which increases the conflict of interest between managers and shareholders and leads to the expropriation of minority shareholders rights. These findings have several implications for understanding the opportunistic behavior of managers.