Board effectiveness and firm performance of Canadian listed firms

An effective board of directors is central to agency theory's prescription to solving the problems of separation of ownership from control in the modern corporation. The shareholders' confidence in the board's ability to fulfil its duties is an important measure of the success or otherwise of this cornerstone of agency theory. The Board Shareholder Confidence Index focuses on the board of directors and is the standard by which Canadian governance best practices are measured. This paper investigates the relationship between board effectiveness and company performance.Using a sample of 699 firm year observations from 2003 to 2009, we find a positive association between the firm's measure of board effectiveness and the firm's contemporaneous and future market measure of performance, Tobin's Q. The results hold across a number of econometric models that control for different types of endogeneities.