The Impact of Board composition on Accounting Profitability of the Firm : A Study of Large Caps in Sweden

Background: The issue about corporate governance became more prominent in recent years as a result of corporate scandals and misconduct of executives. Firms, board members, and executives have been subject to criminal and civil actions over hidden debt, inflated earnings, insider trading, tax evasion, misuse of funds, and breaches of fiduciary duties. Firms such as Enron, WorldCom, and Tyco became well-known because of huge failures in governance. In addition to the scandals, nowadays, we can see that the financial crises have brought attention for today’s debate of corporate governance issue as well. Board is the major component of corporate governance like chief executive office (CEO), shareholders, stakeholders or community in general. This board is authorized to decide on the operations, management, and strategy of the company on behalf of the shareholders. Since the board members suppose to represent their interests. Problem: What is the relationship between main board composition factors and firm’s accounting profitability? Purpose: This thesis strives to analyze the level of correlation between selected board composition factors and accounting profitability of the Swedish Large Companies; by using appropriate statistical tools of correlation we aim to identify the association of selected variables. Method: This research is conducted with sample of 63 large caps from the OMX Nordic Exchange-Stockholm and includes data from 2005 to 2009. We adopt the perspective of a shareholder and the philosophical stance of a positivist. The study uses quantitative method since our sample size is large enough to use the method. Conclusion: The findings highlight that there is no significant relationship between some of the board composition factors namely- number of board directors, percentage of independent directors and experience of board member and the accounting profitability measure (Av. ROE) of Swedish large firms. Where as, in case of the proportion of female directors, we do find a significant correlation between the accounting profitability measure (Av. ROE) and percentage of female directors of Swedish large firms. The correlation results show a positive relationship between the variables