Jennifer R. Joe
Georgia State University
Dahlia M. Robinson
Arizona State University
Abstract: We examine whether Business Week's rankings of the best and worst corporate boards (based on a survey of investors and governance experts) coincide with the characteristics of effective boards identified in academic theory and empirical research. Using additional variables and alternative measures of effective governance than those reported by Business Week (BW) we find that investors' perceptions of board quality are consistent with the attributes of effective boards identified in prior research. Specifically, we find that BW best firms are more profitable and have more growth opportunities than BW worst firms. BW best firms have greater proportions of outsiders, outsiders with financial expertise, and outsiders from Fortune 500 companies. BW best firms also have smaller boards, meet less frequently, grant more options to directors, and offer lower director compensation than BW worst firms. In addition, we examine market reaction to BW's corporate governance rankings. Preliminary results suggest that investors react more positively to best firms than worst firms.
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