BOARD CHARACTERISTICS AND FINANCIAL PERFORMANCE: A COMPREHENSIVE LITERATURE REVIEW

How to cite this paper: Arora, A., & Singh, A. (2021). Board characteristics and financial performance: A comprehensive literature review. Corporate Ownership & Control, 19(1), 188–198. https://doi.org/10.22495/cocv19i1art14 Copyright © 2021 The Authors This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0). https://creativecommons.org/licenses/by/


INTRODUCTION
The research on corporate governance theme majorly discusses the board of directors: its composition, decision-making, independence, and policymaking. The board is imperative for the company's governance, and it is essential to have conclusive and result-oriented board activities in the companies. The literature on this issue recognises the pivotal role played by the board in decision-making and how it affects the financial performance of a company.
The Cadbury Report issued by The Committee on the Financial Aspects of Corporate Governance in 1992, titled -Financial Aspects of Corporate Governance‖, which has given recommendations for corporate boards, describes it as a mechanism by which companies are governed. The onus is on the board to ensure the implementation of strategies according to the framed policies, reduce the agency problem and enhance firm value in the best interests of shareholders. Monks and Minow (2001) discuss how a board acts as the link between shareholders and management of the company. While Fama and Jensen (1983) and Byrd and Hickman (1992) documented that a board is a mechanism to monitor the management of a company, Carlsson (2001) highlighted the significance of an independent and diverse board by presenting the review of corporate governance systems in many countries.
The review reveals a massive strand of literature exploring the relationship between corporate governance on financial performance. For instance, studies like Muth and Donaldson (1998), Ghosh (2007), Chaklader (2011), Dalwai, Basiruddin, and Rasid (2015), Bhatt and Bhattacharaya (2015), Goel (2018), etc. have worked on different board parameters such as board size, composition, directors' busyness, problem directors, CEO duality, family business and their impact on firm performance. The parameters like CEO duality or CEO turnover have been investigated by Donaldson and Davis (1991), Lorsch and Maclver (1989), Ehikioya (2009), Rachpradit, Tang, and Ba Khang (2012), etc. Different arguments on non-executive directors have been presented by many studies like Baysinger and Butler (1985), Bhagat and Black (1999), Mak and Kusnadi (2005), Muller-Kahle, Wang, and Wu (2014), and performance assessment of board has been discussed by Lorsch (1997). The board involvement in strategy has been investigated by Cornforth (2001).
The activities and decision-making of the board are essential concerns for public policy and better governance of the company. The need to conduct a systematic literature review arises from the relevance and importance of the relationship between board variables and firm performance in the academic world. This paper compiles the prominent studies on this issue in tabular format and suggests avenues for future research. It will help the academic field to visualise the lines of future research better in this area. The objective is to review the state of existing literature on various board characteristics and know the scholarly influence of the article through citation analysis.
The remainder of the paper is structured as follows. Section 2 discusses the literature papers addressing the relationship between corporate governance and firm performance. Then, Section 3 reviews the major studies on board characteristics such as board size, meetings, composition, and CEO duality. Section 4 presents the literature in tabular format for international and Indian studies separately, followed by citation analysis provided in Section 5. Section 6 concludes the study.

CORPORATE GOVERNANCE AND FIRM PERFORMANCE
This section provides the synopsis for research work in the area of corporate governance and financial performance. There is evident literature in the past showing that better governance structure has a positive impact on performance. For instance, Brown and Caylor (2006) revealed that a better governance score improves firm performance. Arora and Bodhanwala (2018) examined the corporate governance index against firm performance and showed a positive relationship between the two. Other studies like Beiner et al. (2006), Drobetz et al. (2004), and Beiner, Drobetz, Schmid, and Zimmerman (2004) also concluded a positive association between corporate governance rating and firm value in their research work. Mishra and Mohanty (2014) also confirmed that the aggregate measure of corporate governance is a predictor of firm performance.
However, a negative relationship has been reported by Bauer, Guenster, and Otten (2004) analysed the influence of corporate governance ratings on firm value and found a negative relationship between the two. On the other hand, there are studies such as Hermalin and Weisbach (1991), Park and Shin (2004), Kajola (2008), Onyina and Gyanor (2019), which could not establish an association between corporate governance and firm value. The compiled research showing various studies conducted on this theme has been presented in Table 1 in the tabular format, highlighting the study's objectives, methodology, and findings. The literature review can be seen in Table 1 and Table 2, inclusive of the studies published from 1998 to 2019. The keywords used for selecting the studies for review are board size, composition, meetings, and CEO duality. In addition, the studies examining board variables' relationship with firm performance have been considered for review in our study.

BOARD CHARACTERISTICS
There are many board variables used in previous studies, for example, ownership structure, foreign ownership, CEO tenure, board meetings attendance, qualifications of directors, which have been tested against firm performance variables. We have reviewed the studies based on board of directors' keywords, and hence our discussion variables are board size, composition, meetings, and CEO duality.

Board size
The agency theory of corporate governance supports a larger board size because it may provide diversified supervision and trim down the excessive intervention of the CEO in the board activities (Singh & Harianto, 1989;Conyon & Peck, 1998;Bhatt & Bhattacharya, 2015). The resource dependency theory proposes that boards provide essential resources to the firm in terms of diverse opinions on an issue; if the board member is sitting on any other board. Drawing on this theory, Pfeffer and Salancik (1978), Klein (1998), Kim, Cha, Cichy, Kim, and Tkach (2012), and Hillman and Dalziel (2003) advised that advisory requirements of chief executive increase when the management is dependent on external resources. So, a larger board size would provide business and social networks to the company. In response, corporate prefers larger boards to procure diversity and expertise (Pfeffer, 1972;Pearce & Zahra, 1992).
The studies by Bermig and Frick (2010), Lipton and Lorsch (1992), Belkhir (2009), and O'Reilly, Caldwell, and Barnett (1989) favoured smaller boards because larger corporate boards may face problems of reaching consensus, delayed decisionmaking, and free-riding. This view has been supported by Jensen (1993), such that companies have smaller boards with better decision-making and coordination. Empirical evidence has also been provided in the literature on the association of smaller boards with higher firm value (Eisenberg et al., 1998;Kumar & Singh, 2013). This argument is supported by Yermack (1996) and Mashayekhi and Bazaz (2008), claiming that small board member group takes decisions in a more consensus way and achieve higher profitability comparatively.
However, these results have been opposed by authors like Coles, Daniel, and Naveen (2008) (2016), who advocated for larger board size on the grounds of bringing in diversity and expertise leads to better ideas. For instance, Dalton, Daily, Johnson, and Ellstrand (1999) documented that directors may provide access to external resources also. Also, Haleblian and Finkelstein (1993) submitted that a large group has better-varied opinions leading to better decision-making. Also, Topak (2011) could not find an association between board size and firm value.

Board composition
The company's financial performance next parameter for discussion is board compositionthe presence and proportion of executive and independent directors on the corporate board. The independent directors are supposed to mitigate the likely clashes between management and owners. The agency theory claims that a board should consist of both types of directors. However, stewardship theory advocates that executive directors should take decisions as they are better informed about the firms' activities and future strategies than outside directors.
There are substantial studies in the literature reporting better performance of a company where the board appoints independent directors. For example, Baysinger and Butler (1985), John and Senbet (1998), and Mak and Kusnadi (2005) reveal that boards with independent directors have the responsibility to supervise management on behalf of owners and are linked with higher firm value. Similarly, Rosenstein and Wyatt (1990) presented empirical evidence for the positive influence of independent directors and stock returns. However, contradictory results have been presented by Yermack (1996), showing that independent directors do not impact financial performance. Moreover, the boards that hired independent directors only to meet the regulatory guidelines do not necessarily lead to better performance (Agrawal & Knoeber, 1996). Some authors like Hermalin and Weisbach (1991) and Bhagat and Black (2002) even declined any relationship between board independence and performance. Also, Vo and Nguyen (2014) and Arora and Sharma (2016) opined that board independence negatively impacts firm performance.
Board meetings Some authors contend that board meetings are necessary so that every member understands everything through the same lens and formulates strategies accordingly (Zahra & Pearce, 1989). It helps the directors to have better coordination, and they work in alignment with the company's interests (Lipton & Lorsch, 1992). In contrast, other proponents argued that there are also costs involved with meetings like travelling from different cities, remunerations for attending meets, or managerial time (Vafeas, 1999). Some authors and Jensen (1993) pointed out that routine issues absorb more time in meetings; thus, it may not necessarily add to the financial performance of the company. If a company can fix the number of board meetings efficiently, it may reduce agency costs to a great extent.
Board leadership (CEO duality) Another significant research work in corporate governance is a company's financial performance whether CEO and chairman's position should be dual or separated. CEO duality is supported by stewardship theory on the argument that it documents clarity of leadership for policy formulation without any conflicts in the two positions (Anderson & Anthony, 1986;Donaldson & Davis, 1991;Boyd 1995). The opponents cite agency theory (Carver, 1990) and reveal that it is difficult for directors to carry out their governance role when these two positions are separated ( Prior studies also reported endogeneity issues when board variables are regressed against performance. In this direction, the inverse relationship between corporate governance and firm performance has also been tested by Valenti, Luce, and Mayfield (2011) and Arora and Sharma (2015).

LITERATURE AT A GLANCE
There has been an increased intensity of research in India, but again, no conclusive evidence to prove whether better governance leads to better performance. Nevertheless, the empirical work is still less in India than in other countries due to the data unavailability problem or opaque disclosure practices followed by Indian companies. In Table 2, most Indian empirical studies examining the relationship between corporate governance and firm performance have been summarised in tabular format.

CITATION ANALYSIS
Citation analysis identifies the total number of citations of a study by other Scopus-indexed research papers to know the scholarly influence of the paper. We have done citation analysis (see from Table 3 to Table 5) for the studies that have been compiled in Table 1 and Table 2 separately. The software VOSviewer has been used for this bibliometric review, which conducts analysis that visualises similarities among research papers, authors, and journals. Such analysis have been conducted by E-Vahdati, Zulkifli, and Zakaria (2019) and Gonzales-Bustos and Hernández-Lara (2016), etc. The choice of Scopus-indexed journals for calculating the citations is guided because it is the largest citation database of research literature and quality web sources.  6 Kumar and Singh (2013) 58 7 Garg (2007) 49 8 Mishra and Mohanty (2014) 35 9 Kathuria and Dash (1999) 14 10 Bhatt and Bhattacharya (2015) 11 11 Arora and Bodhanwala (2018) 9 12 Al-Homaidi et al. (2019)  5 The citation analysis measures the relative influence or impact by counting the number of times a publication has been cited by other authors (Ahmad & Omar, 2016). A systematic literature review of existing Indian papers has been done in Table 3 using the citation analysis approach by selecting 12 articles published in Scopus. We can observe that the most cited papers in this area in the Indian context are Jackling and Johl (2009), followed by Balasubramanian et al. (2010) and Arora and Sharma (2016). This software program has been used widely to gain insights into the citations of documents, countries, authors. However, it provides citations of Scopus-indexed studies only by other Scopus-indexed research papers. For example, the paper, Al-Homaidi et al. (2019) has been cited five times, but its publication year is recent compared to the earlier publications. The international studies' systematic review has been done in Table 4 using citation analysis approach by selecting 18 articles published in Scopus. We can observe that the most cited articles in the international context are Eisenberg et al. (1998), followed by Bhagat and Bolton (2008), Brown and Caylor (2006), and Black et al. (2006). The first eight studies in Table 4 have been cited more than 100 times. These papers can be considered of significant company's financial performance scholarly influence and may influence future research in this area also.  Table 5 gives us the impact of studies conducted in a particular country by way of its citations. The documents from the United States have the maximum number of studies and, therefore, a large number of citations. We can see that the relationship between corporate governance and firm performance is a well-researched area in developed and emerging economies. The studies from countries such as the United States, Finland, Germany, China, Nigeria, Switzerland, and South Korea have more than a hundred citations. The articles from Ghana and South Africa have the lowest number of citations.
The citation index shows that articles from developed countries are more cited than developing countries. The reason could vary from one paper to another, i.e., usage of keywords, international or national audience of the paper, accessibility, and choice of journals. There is a possibility that a paper with a broader audience versus a paper attracting limited scholars or academicians will get a large proportion of citations. The latter may be cited only by advocates working in a particular field. Further, accessibility of the study through open access journals or research portals is also an essential factor; papers that are free and easy to download may receive more citations than their counterparts. Also, another critical factor is the year of publications. Research publications in indexed journals are an old phenomenon, but emerging economies have struggled over the years for data availability and access to databases and software. Thus research commenced much later in those countries, as compared to developed countries.

CONCLUSION
Our study attempts to review the state of literature addressing the relationship between corporate governance and firm performance extensively in a tabular format. We have focused on the board variables such as board size, composition, meetings, and CEO duality. The review unfolds the prominent studies in corporate governance in developed and emerging economies like India in a tabular format to compare the findings and methodology used in different studies more simply. We found that the relationship between corporate governance and firm performance has been a well-researched area for many decades. In most of the studies, a panel data framework has been structured, and statistical tools such as random effects, multiple regression analysis, simultaneous equations, or instrumental variables approaches have been adopted to overcome the possibility of endogeneity bias. Most of the chosen studies' widely used firm performance measures are ROA and Tobin's Q. Other firm performance measures used are profitability, market capitalisation, earnings per share, stock returns, composite corporate governance index, and the like. Through citation analysis, it has been observed that the articles from developed countries are more cited than developing countries. The most cited studies in this context are Eisenberg et al. (1998) in the international context and Jackling and Johl (2009) in the Indian context. This citation analysis will help scholars to gain insights into the most influential papers on corporate governance. Our study provides the most comprehensive literature review in corporate governance; it covers the majority of the empirical studies and presents them in a tabular format for easy comparison with other studies. Also, it covers citation analysis of the literature in the board of directors and firm performance to know the impact of a publication in the international and Indian contexts.
The study limitations include the lack of cluster analysis and social network maps in the bibliometric analysis. The future systematic literature review may concentrate on variables like board characteristics of audit, nomination and remuneration committees, board diversity, and corporate governance mechanisms in family-controlled businesses. The future review may dwell on these parameters along with the cross-country comparison.