Boards of Directors, Market Discipline and Firm Performance


  • Richard Bozec

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      The author is from the School of Management, University of Ottawa, Canada. He gratefully acknowledges the financial support of the CGA-Accounting Research Centre at the University of Ottawa.

Richard Bozec, University of Ottawa School of Management, 136 Jean-Jacques Lussier Street, P.O. Box 450 Station A, Ottawa, Ontario, Canada K1N 6N5.


Abstract:  The board of directors is generally seen as an important internal governance structure. However, the empirical evidence on the board-performance relationship is not conclusive. On the other hand, a growing literature suggests that different control mechanisms, either internal or external to the firm, can interact with each other and affect performance. One such important factor is product market competition. The objective of the study is to investigate further the board-performance relationship taking into consideration the potential effect of market competition. More precisely, the study analyzes the combined effect of boards of directors’ characteristics, and market discipline on firm performance. Overall, the results suggest that competition has a positive and significant impact on firm profitability and productivity. Moreover, this determinant factor creates the conditions for which the board-performance relationship is supported. In other words, for boards to be effective, firms should be exposed to a competitive environment.