Board independence and firm performance - the Hong Kong context

Corporate governance has growing importance in the business world as companies expand with increasingly complex and sophisticated operations locally and across the globe. The corporate system has in essence separated ownership and management of companies, this separation gives rise to a number of management issues. Research in corporate governance has been dominated by agency theory, with additional and complementary theories gaining relevance in offering better and fuller explanations for management issues. Hong Kong is one of the international financial centres and leads in global fundraising activities, its proximity to and relationships with Mainland China provide Hong Kong with unique opportunities and advantages. Thus, it is imperative for Hong Kong to have an effective governance regime suited to its own circumstances. This research examines the hypothesised relationships derived from key theories of corporate governance to test if attributes of board independence and composition have any impact on performance of firms in the Hong Kong context. Constituent companies of the Hang Seng Composite Index are used as sample because the portfolio of companies accounts for some 95% of the market capitalisation of Main Board listed companies and are considered to be representative of the Hong Kong context. Taking a quantitative approach and using archival data, percentage of independent directors, CEO duality, independent directors’ tenure, board size, gender diversity, directors’ age and board members’ concurrent directorships are statistically analysed as to whether they have impacts on firm performance in terms of accounting and market measures. Among the seven board attributes tested, results of correlation and regression analyses reveal that three of the attributes are related to firm performance as suggested by the governance theories, two attributes indicate relationships contrary to the hypotheses tested, while the remaining two attributes exhibit no relationships to firm performance. These results in the Hong Kong context suggest directions for policy and practices regarding governance mechanisms for the Hong Kong regime. Latest developments in studies of corporate governance and boards of directors as well as directions for future research are also discussed.