Corporate strategy, board composition, and firm value

Abstract

This study addressed a gap in the literature by investigating the link between corporate strategy and board composition and how it connects to firm value. Most studies have explored whether board structure predicts firm outcomes rather than the other way around even though firm strategy plays a significant role in structuring the board. The sample covered the period between 2013 and 2018 and included 20,677 firm-year observations, on which we executed country-industry-year fixed-effects regression analysis. We found that, first, cost leadership strategy was positively associated with board size, board independence, board gender diversity, and board tenure, whereas it was negatively associated with board skills. Second, differentiation strategy was positively associated with board size and board gender diversity. Third, the moderating effects revealed that while board size and board tenure negatively moderated between cost leadership and firm value, board skills positively moderated between cost leadership and firm value. On the other hand, while board size, board gender diversity, and board tenure positively moderated between differentiation and firm value, board skills negatively moderated between differentiation and firm value. The results were robust to an alternative firm value proxy and endogeneity concerns. These findings provide firms with the opportunity to better shape their board structure in line with their corporate strategies and shareholder expectations.