Board Composition and Organizational Performance: Environmental Characteristics Matter

Abstract

Concern for board of directors considerably increased with the recent developments in the corporate governance field. Despite that extensive research was conducted, the understanding of the board and its effects is still limited. This is mainly because that the majority of the corporate governance research focused mostly on the direct relation of board characteristics with organizational outcomes, and neglected the effect of intervening variables, leading to inconclusive research findings. Deriving on this limitation, in this study, the effect of board composition on organizational performance was investigated for different environmental conditions, which are measured in terms of munificence and dynamism of the industry in which the organizations operate and product complexity of the organizations. In addition, the moderating effects of these dimensions of organizational task environments on the relationship between board composition and organizational performance were also addressed. Building on resource dependence theory, it is suggested that under different environmental conditions, different compositions of boards will positively influence organizational performance. Based on the data from 80 companies which shares are publicly traded in İstanbul Stock Exchange, the findings indicate that the effect of board composition on organizational performance vary among different environmental conditions.