Abstract
We investigate the relation of board structure through the appointments
of outside directors and the role of busy directors on firm return
on assets within an environment of no regulation for privately held
firms and voluntary adoption of corporate best practices for security
issuers with family controlling blockholders. This study relies on
a sample of an average of 335 firms per year for the 1996-2006 period,
where 244 are private firms and 285 are affiliated to one of the
seven largest non-financial business groups in the country. Five
of these groups were, in 2006, still family-controlled. We find a
positive relation between both the ratio of outside directors, and
the degree of board interlocks, with firm return-on-assets. Outside
busy directors turned out to be key drivers of improved firm performance.
Appointments of outsiders are endogenous to firm ownership structure.
Blockholder activism as well as contestability becomes an internal
mechanism that improves director monitoring and ex-post firm valuation.
© 2011 Elsevier Inc.
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