Board structure and firm performance in Indian IT firms

Abstract

Purpose – The purpose of this paper is to examine the relationship between financial performance and internal governance structure of Information Technology (IT) sector in India. Various aspects of the board such as board independence, board size, board meeting, board attendance, aspects of leadership with role duality and family ownership are addressed in this study. Design/methodology/approach – The sample consists of 114 listed IT sector firms in India from 2006 to 2011. To account for endogeneity of the relationship between firm performance, corporate governance and capital structure of the firm, simultaneous system of equations was employed. Findings – The study, after controlling for firm-specific factors, shows that larger board size had a positive impact on firm performance. Independent directors on the board did not show any association with firm performance. The study failed to find any relationship between the number of board meetings and firm performance. However, attendance of the board members was found to be positively associated with firm performance. Family firms showed better performance compared to non-family firms. Originality/value – The study demonstrates that governance measures related to the board in Indian firms have some similarities to the firms in western countries. However, the study shows that some of the widely used board characteristic measures differ with other studies documented in the western contexts which limits the generalisability of the western studies in the emerging countries.