Corporate Governance Mechanisms and Firm Efficiency

This paper uses technical efficiency to measure the performance impact of internal corporate governancemechanisms. Specifically, it analyzes how the size, leadership and composition of the board of directors togetherwith external shareholders can be structured to enhance a firm’s technical efficiency. The study utilizes anunbalanced pool of manufacturing firms in sixteen countries and offers support that active large externalshareholders’ who commit credible signals to minority investors of firms that have an insider-dominated orbalanced small board with a unified leadership can lead to enhanced technical efficiency. The results alsoprovide evidence of the convergence of American and European corporate governance practices. Externalshareholders are also encouraged to elect an outsider-dominated board when insiders underperform, and not onblind normative advice.