Directors, Outsiders and Efficiency: An Analysis of How Board Characteristics Influence Firm Productivity

This paper investigates the relationship between firm productivity (total factor productivity or TFP) and four different board characteristics, including board size, board independence, CEO board leadership and board ownership (shareholdings). We find that board independence is positively associated with productivity while CEO board leadership is negatively associated with productivity, unlike existing work that finds no relationship between these two board characteristics and firm financial performance. We also find that the consistent negative relationship between board size and financial performance does not apply to all firms when we use productivity as the measure of performance. Finally, we find that board ownership is related to productivity with an inverted U-shape, similar to prior work. Our sample consists of 1109 U.S. manufacturing firms between 1996 and 2005