Board composition and firm value under concentrated ownership: the Canadian evidence

This paper examines the relation between board composition and firm value in the presence of significant ownership concentration using publicly traded Canadian firms over the 1993-1997 period. The results indicate that greater board independence does not have a positive influence on firm value and that poorly performing firms increase the proportion of outside directors in subsequent periods. This may result from firms acting to appease unhappy investors by adding outside directors. However, the results also indicate that directors from financial institutions can provide monitoring benefits. Finally, the negative effect of dual class common stock on firm value is mitigated by board independence, the participation of officers from financial institutions and audit committee independence. These findings suggest that sound governance practices can enhance firm value in countries with high ownership concentration even in the presence of strong minority shareholder protection.