Board Structure and Agency Costs

The purpose of the paper is to test the hypothesis that board structure and its impact on value is a function of firm's growth opportunities. Consistent with this hypothesis, the results show that, while low growth firms are less likely to have an independent board, i.e., to split the roles of the chairman and CEO, to have a high proportion of non-executive directors and to appoint a non-executive as a chairman, their value is positively related to these board structure variables. In contrast, for high growth firms, the relationship between board structure and firm value is weak, suggesting that board structure does not always mitigate the agency conflicts. The results suggest that imposing the same board structure for all companies independently of their specific characteristics is likely to reduce the value of firms that may be forced to depart from optimal corporate governance structures which have been successful.