The Impact of Board Size and Independent Directors on Firm Performance

Abstract

This study explores the relationship between firm performance and both board size and board composition for a sample of quoted KSE -100 firms using three alternative performance measures: ROE, Tobin’s Q, and ROA. A sample of 60 listed companies at Karachi stock exchange KSE-100 index was randomly selected. A regression Analysis was used as most appropriate measures of the variable board composition and board size. Researcher find evidence that: (i) board size exhibits a significant negatively association with firm performance, (ii) a positive and significant association between firm performance and the percentage of independent directors on the board is apparent. The key statistically significant results are as follows. First, board size exhibits a significant negatively association with firm performance (Using ROE, ROA, Tobin’s Q. The findings provide evidence that the market seems to have a preference for small board size. Based on results and analysis it is concluded that companies having independent directors in their board composition will show greater firm performance and positively associated with the firm performance. Results showed that the listed companies of Pakistan Stock Exchange, which have independent board members in their board, were showing greater return on assets (ROA), ROE and Tobin’ Q.