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Volume 20, Number 3 / September 2016 , Pages 181-271
Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 181-236
Andreas Charitou , University of Cyprus, Cyprus
Ifigenia Georgiou , Aston Business School, UK & Cyprus International Institute of Management, Cyprus    Corresponding Author
Andreas Soteriou , University of Cyprus, Cyprus

In this paper, we highlight the strategic role of the board of directors (BOD) in business excellence and its link with firm value. We empirically investigate the relationship between the composition of the BOD and the winning of a Malcolm Baldrige National Quality Award (MBNQA) or a local award explicitly based on the MBNQA criteria, a proxy for business excellence. Using a contingency approach, we examine several characteristics of the BOD, such as the number of inside directors, the number of directors who can be considered industry experts, and the number of directors with management expertise. We show that the likelihood of winning a quality award is positively associated with the number of outside directors with Ph.D. in the main object of business operations, and the number of outside directors with recent industry expertise. Subsequent residual analysis reveals that firm value is positively associated with the degree of the fit between board composition and quality management strategy. Specifically, operating income before depreciation, operating margin, Tobin’s Q, and ten-day raw and market adjusted returns, are positively related to the degree of fit, while cost per dollar of sales, negatively. Thus, we, conclude that an appropriate board structure that fits the QM strategy exists, and this fit is positively associated with firm value.

Keywords : board of directors; corporate governance; director expertise; strategic role of the board quality management; quality awards
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Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 237-271
Tom Berglund , Hanken School of Economics, Finland    Corresponding Author
Martin Holmén , University of Gothenburg, Sweden

Employees in Swedish firms have the legal right to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not exercised. This paper asks why that is the case. We use a simple framework, based on rational choice by individual employees. Our sample consists of 226 listed non-financial Swedish firms in 2001-2007. The results are in line with our predictions. Employee board representation does not impact firm performance, neither positively nor negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, employee board representation decreases with firm risk, slow growth, and internationalization. We conclude that when the law grants the right for employees to be represented on the board a simple model based on individual utility maximization provides an explanation for why the right is used in some firms and not in others.

Keywords : employee representation; board composition; dependent directors; firm performance; corporate governance
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