Board Independence and Long-Term Firm Performance: The Initial Quest of Effective Board Paradigm - A Survey Based on Nonlinear Regression Equation Modeling

We investigate the relationship between board independence and firm’s long-term performance, as measured by Tobin’s q. In a longitudinal sample of 1,143 firms in the S&P 1500 list from 1997 through 2006, we find some evidence of a significant nonlinear relationship. Two of three nonlinear models we hypothesized have been supported, one is inverted U-shaped, and other is steeple-shaped, that means q first increases, then declines as board independence rises. Thus, the controversy between conventional wisdom and Bhagat and Black (2001) is merged into a complementary model by this work. Unfortunately, the three-stage model cannot be conducted as a similar relation.