The Impact of Board Structures on Shareholders Returns

If joint stock companies and agency problem are twins then board of directors will be their after-birth. As opine by Jensen and Meckling (1976) since the separation of ownership from management through joint stock companies, agency problem has never been eliminated. Various approaches such as laws, trustee, auditing, have been used to arrest the agency problem and protect the benefit of shareholders. But board of directors has emerged as an efficient approach to protect shareholders benefit. This paper has revealed the impact of board size, number of promoter directors and independency of the board on the total benefits a shareholder gets for investing. An unbalance panel data was collected from annual reports of 25 companies through purposive sampling for the accounting years 2009 to 2013. The Hussmann's test was used to check the appropriate regression method to statistically test the impact of board structures on total shareholder's return. It was found that, the average board size in companies was 12 members out of which half were independent, 3 are promoters/founders and remaining are other executives. Shareholders also get more than 90% of their returns from changes in share prices. The random effect regression method reports that, all the board variables have a positive relationship with shareholders return with the exception of board size but only board independence is significant @ 5%. Promoter directors have an inverse relationship with capital gain whiles board size and independent directors have positive correlation