Board Independence and Firm Financial Performance: Context of Publicly Traded Manufacturing Companies in Bangladesh

This study strives to investigate the effects of board independence on financial performance of publicly held manufacturing companies in Bangladesh using both accounting (ROA) and market-based (Tobin’s Q) performance measures. Initially, we select 150 manufacturing companies but only 85 companies remain in the study sample after fulfilling the data availability criteria over a period from 2006-2017. The OLS regression model reveals that board independence has positive effects on both ROA and Tobin’s Q, which supports some prior studies (Pearce& Zahra, 1991; Zahra & Pearce, 1989; Ezzamel&Watson, 1993; Hossain, Prevost &Roa, 2001; Choi, Park &Yoo, 2007; Joh& Jung, 2012), but the relationship between board independence and Tobin’s Q are not statistically significant. Bangladesh Securities and Exchange Commission (BSEC) has made it a mandatory requirement in the corporate governance guidelines to include1/5th of the total directors as independent directors into corporate boards for bringing transparency and accountability of its affairs without considering the underlying institutional differences. Though board independence is considered as an important mechanism of corporate board practices in most of the developed economies, it is still less appealing in emerging economies, especially in Bangladesh. Keywords: Independent directors; firm performance; effective function . DOI : 10.7176/EJBM/11-33-11 Publication date: November 30 th 2019