(How) does board capital contribute to firm performance? A study of Australian boards

This thesis examines how, how much, and under what circumstances the board’s collective capability, in the form of board human and social capital (or board capital), influences firm financial performance. It does so by taking account of the multi-dimensional nature of the relationship between shareholders, the board of directors, and the Chief Executive Officer (CEO) through a multi-theoretical framework informed by three of the most prominent theoretical perspectives in corporate governance and board research. The thesis also considers the extent to which two key governance factors, namely board incentives in the form of equity ownership and the influence of the CEO in the form of CEO power, moderate the board capital to firm performance relationship. The central proposition of this thesis, informed chiefly by Resource Dependence Theory, is that board capital places an inverted-U shaped effect on firm performance. Based on Agency Theory, it is further hypothesised that this relationship between board capital and firm performance is positively moderated by board equity ownership. In addition, in line with Managerial Power Theory, it is posited that the board capital - firm performance relationship is hindered by the influence of CEO power. Hypothesis testing involves the application of System Generalised Method of Moments analytic procedure to a dynamic panel data relating to 213 highest market-capitalised companies on the Australian Stock Exchange for the period 2008 to 2012 and covering a total of 7,577 directorships. The overall results confirm that board capital, board equity, and CEO power significantly affect firm financial performance. However, results also show that these effects, either in the individual or interactive forms, are more complex and contingent than governance theory and research has proposed. Taken together, the thesis’s findings highlight the use of a multi-theoretical approach to account for a more nuanced understanding of how the board contributes to organisational financial outcomes. The findings suggest the importance of recognising the multi-faceted nature of board capital, board equity, and CEO power; the multi-dimensions of firm performance; and the dynamics of the shareholders - CEO - board relationship. While the study has acknowledged limitations, it is suggested that these findings make a significant contribution to research on corporate governance in general and boards in particular. They also carry important implications for corporate governance theory and practice