Does board composition affect firms performance? - An empirical study on selected indian manufacturing companies

One of most important part of corporate governance is size and composition of board and many researchers show their interest to find the relationship between board size and composition on firm performance, in developed countries. But the study of this relationship is fairly neglected in emerging economies like India. The present study investigates empirically whether the corporate board size and composition affect the performances of selected Indian manufacturing companies during the period April 2006 to March 2011. Here Board Composition is represented by Number of Executive Directors, Board Independence and Chairman's Identity. For measuring corporate performance we have considered Net Sales, Net Profit, Return on Capital Employed, Earning per Share and Tobin's Q. The empirical results indicate that board size has a positive impact on corporate performance where as the independence of the board and presence of non-executive chairman in the board has negative impact. No significant relationship is found between the proportion of executive directors in the board and performance of the company. So from the study we can conclude that the board compositions have a significant effect on corporate performance. In some cases the explanatory variables are able to explain the variation of corporate performance up to 27 percent and the joint effect of these variables is also statistically significant.