4.5.2 Studies from 1995 until 2004

Anderson and Reeb (2003) focused on the influence of family ownership on performance, but used board independence1 as a control variable in the analysis. In their diversified sample of 403 United States companies and 2,713 company year observations over the period 1992 to 1999, they found that non-family companies have significantly more (61 versus 44 per cent) independent directors than family companies (Anderson and Reeb 2003: 1313). Family companies are defined in this study as companies with family ownership or family members on the board. The results show that family companies perform at least as well as non-family companies and for some measures even better (Anderson and Reeb 2003: 1324). The relationship between performance and board independence shows very mixed results. The performance measures ROA – calculated with EBITDA (earnings before interest, tax, depreciation, and amortisation) as well as net income – and Tobin’s Q show either negative, positive or significantly positive results (Anderson and Reeb 2003: 1340-1320).

Kiel and Nicholson hypothesised that there is no correlation between board independence2 and financial performance of companies, because the agency and stewardship theory have different views about the direction of the relationship (2003: 195). They tested their hypothesis on a sample of 348 Australian companies over the period 1996 until 1998. In line with the hypothesis, the study shows a small, not significant positive correlation with the three-year average of ROA. But the correlation with the market-based performance measure Tobin’s Q is significantly negative (Kiel and Nicholson 2003: 198-200). The relationship between Tobin’s Q and board independence appears to be significantly negative in an ordinary least squares regression as well.

Randøy and Jenssen (2004) conjectured that the influence of board independence3 on performance is dependent on the level of market competition in an industry. In a sample of 98 Swedish listed companies and 294 company year observations over the period 1994-1996 they tested the influence of board independence on performance. Based on the knowledge that boards provide a control function (monitoring) and a resource function (knowledge), Randøy and Jenssen expected that board independence in highly competitive markets would have a negative impact on performance (Randøy and Jenssen 2004: 282-283). The market competition in highly competitive markets, which are characterised by low profit margins, performs some form of monitoring. This form of monitoring makes monitoring by independent directors less necessary. Monitoring through board independence and a highly competitive market might be ‘too much of a good thing’. Companies in these highly competitive environments benefit from the resource function, whereas with the same reasoning it can be explained why companies in not highly competitive markets might benefit from larger levels of board independence. The results do indeed show that board independence in a highly competitive environment has a significantly negative impact on performance, measured by Tobin’s Q and a lagged version of ROE (Randøy and Jenssen 2004: 285-287). The results for moderately competitive industries are mixed and the results for less competitive industries show a significant positive effect of board independence on the market performance measure Tobin’s Q. The linear relation with ROE is positive, but not significant.