Board Composition and Firm Performance : The Case of FTSE All Shares

This paper investigates the impact of the composition of board of directors on firm performance using UK FTSE All-Shares non-financial firms for the period before and during the latest global financial crisis. The main hypotheses tested were whether board composition, namely, board size and board independence, has an impact on firm performance, using Tobin’s Q (TQ) and Return on Assets (ROA). Univariate and multivariate (including 2SLS regression) were carried out to test these hypotheses. The results suggested a high positive association between board size and TQ, and insignificant association between board size and ROA, while some evidence was found for the impact of an independent board on firm performance. The results also found a negative association between blockholdings and performance during the financial crisis in 2008, whilst an insignificant relationship was observed before 2008. The paper contributes to prior research by providing year by year analysis to the relationship between board composition and performance prior to and during the financial crisis and considering the impact of large shareholders (in particular institutional shareholders) on mitigating agency costs