Board structure, firm performance variability and national culture

Purpose: The purpose of the study is to examine the relation between board structure and firm performance variability in an international setting. The authors further explore the effect of national culture in shaping such relations. Design/methodology/approach: The authors’ international sample contains 4,911 firms across 49 countries over the 2002–2017 period. The authors use national culture values on individualism and power distance developed by Hofstede (1980, 2001, 2011). The authors focus on within-firm, over-time variability of firm performance and estimate multivariate linear regressions with fixed effects. The authors address the endogeneity concern using the instrumental variable approach, and the authors’ results are robust to alternative measures of variables and different subsamples. Findings: The authors find that firms with larger board size, greater board independence and less powerful CEOs have less variable performance. Individualism has a magnifying effect while power distance has a mitigating effect in shaping such relations. Originality/value: To the best of the authors’ knowledge, this study is among the first to answer the call of Adams, Hermalin and Weisbach (2010) for research on corporate boards in an international setting. It is also one of the few studies which examine the variability of firm performance, while the majority of existing literature focuses on the level of firm performance. Most importantly, to the best of the authors’ knowledge, this study is the first to explore the role of national culture in shaping boardroom interactions that affect the decision-making process of corporate boards, which, in turn, affects firm performance variability.