Is There an Optimal Board Structure? An analysis Using Evolutionary-algorithm on the FTSE Bursa Malaysia KLCI

Optimal board structure suggests a firm can operate efficiently and experiences better firm performance, given its board composition. We explore whether in-sample (pre-Global Financial Crisis) companies with optimal board—which subscribes to the corporate governance best practice—dominates the so-called non-optimal board firms, and if they remain the best companies out-of-sample (Global Financial Crisis period). Using two common measures of accounting performance—return on equity (ROE) and earnings per share (EPS)—we utilize evolutionary algorithm to optimize board compositions of CEO duality, board size and independent, non-executive directors. Out-of-sample, our results indicate that optimal board firms outperform their non-optimal counterparts in terms of the ROE and EPS, although insignificant. We argue that while board composition is a popular corporate governance measure, determining an optimal board structure for superior firm performance might be elusive.