4.1 Introduction

The previous chapter has concluded that the importance of independence is heavily dependent on the chosen theoretical economic framework. The agency theory and TCE theory regard independence as an important subject and hypothesise that high levels of board independence lead to better monitoring and consequently to better (financial) performance of the company. The stewardship theory does not consider independence to be important and attributes no benefits to board independence for (financial) performance of the company. Hence, proponents of the stewardship theory hypothesise that high percentages of directors from inside the company on the board – i.e. low levels of board independence – lead to better (financial) performance, because these directors have knowledge of the company that is needed for high-quality decision-making. The resource dependence theory and stakeholder theory are not taken into consideration in this chapter, because both theories do not consider independence to be important and attribute no positive or negative effects to it. Resource dependence theorists would like to invite members on the board of companies or organisations which the company depends on, in order to control these sources of dependence. And the stakeholder theory is concerned with the way the rights of stakeholders are considered.

This chapter addresses the research question about the consequences of independence for financial company performance. It aims to investigate whether board independence is indeed beneficial to financial company performance, which is in accordance with the agency theory and TCE theory; or that it is not beneficial to financial company performance, which is in accordance with the stewardship theory. Therefore, literature on the relationship between board independence and director independence and the financial results is described qualitatively in this chapter. A broader sample of literature in this field is used in chapter 5, where a meta-analysis is conducted to address the same research question quantitatively.

This chapter starts in section 4.2 with a brief introduction of the described relationships and the performance measures used. As literature in this field is quite abundant, the structure of this chapter is based on the reported sign of the relationship. Section 4.3 describes the literature on the performance effects of board independence that find a positive relationship with financial performance, section 4.4 describes research that has reported negative relationships and section 4.5 describes inconclusive research. All these sections are chronologically ordered. Section 4.6 concludes this chapter.