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Boards of Directors and Firm Performance: is there an expectations gap?

Authors


*Quinn School of Business, University College Dublin, Belfield, Dublin 4, Ireland. Tel: +353-1-716 4707; Fax: +353-1-716 4767; E-mail: Niamh.Brennan@ucd.ie

Abstract

Reflecting investor expectations, most prior corporate governance research attempts to find a relationship between boards of directors and firm performance. This paper critically examines the premise on which this research is based. An expectations gap approach is applied for the first time to implicit expectations which assume a relationship between firm performance and company boards. An expectations gap has two elements: a reasonableness gap and a performance gap. Seven aspects of boards are identified as leading to a reasonableness gap. Five aspects of boards are identified as leading to a performance gap. The paper concludes by suggesting avenues for empirically testing some of the concepts discussed in this paper.

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