The performance effect of corporate board of directors

This paper examines the relationship between board-member independence, family control, and financial performance in Swedish listed firms. The degree of independence is defined with respect to the principal owners, the management of the firm, and the employees. This definition of independence and the accessibility of detailed data on corporate governance variables, enable precise measurements of board-member independency. The results of this analysis indicate that the directors, who are dependent on the management of the firm, dominate the board of directors. Board-member independence positively affects a firm's financial performance. The negative effect of board-member dependency originates from the firm-related directors, whereas dependence on principal owners, families, and employees does not impact a firm's investment performance. These results are important in the contemporary political debate about the role and the composition of boards of directors. The result of the analysis shows that the definition of independence is important when discussing boards of directors. Directors, independent of the firm, positively influence a firm's investment performance.