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Board composition, grey directors and corporate failure in the UK

Wu, Chloe Yu-Hsuan; Hsu, Hwa-Hsien

Authors

Dr Chloe Wu Y.Wu@hull.ac.uk
Lecturer in Accounting and Finance/ Programme Director of BSc in Accounting (HKU)

Hwa-Hsien Hsu

Abstract

This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs’ personal or economic ties with the firm and its management on firm performance. We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have overemphasised the monitoring function of independent directors and underestimated the benefits of NEDs’ affiliations with the firm and its management.

Publication Date 2014-09
Journal British accounting review
Print ISSN 0890-8389
Electronic ISSN 1095-8347
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 46
Issue 3
Pages 215-227
Institution Citation Wu, C. Y., & Hsu, H. (2014). Board composition, grey directors and corporate failure in the UK. The British accounting review, 46(3), 215-227. https://doi.org/10.1016/j.bar.2013.12.002
DOI https://doi.org/10.1016/j.bar.2013.12.002
Keywords Board structure, Board independence, Grey directors, Corporate governance, Corporate failure
Publisher URL http://www.sciencedirect.com/science/article/pii/S0890838913000899
Copyright Statement © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Additional Information Author's accepted manuscript of article published in: British accounting review, 2014, v.46, issue 3.

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Copyright Statement
© 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/




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