Corporate Governance

Board characteristics and firm performance in Spain

Mercedes Rodriguez-Fernandez Sonia Fernandez-Alonso José Rodriguez-Rodriguez
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Mercedes Rodriguez-Fernandez Sonia Fernandez-Alonso José Rodriguez-Rodriguez , (2014),"Board characteristics and
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Supriti Mishra, Pitabas Mohanty, (2014),"Corporate governance as a value driver for firm performance: evidence from India",
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CG-12-2012-0089
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 Board characteristics and firm
performance in Spain
Mercedes Rodriguez-Fernandez, Sonia Fernandez-Alonso and José Rodriguez-Rodriguez
Mercedes Rodriguez-
Fernandez,
Sonia Fernandez-Alonso
and José Rodriguez-
Downloaded by University of Queensland At 16:33 30 January 2016 (PT)
Rodriguez are all based
at the Department of
Economy and Business
Administration, University
of Malaga, Malaga,
Spain.
Received 30 January 2013
Revised 14 May 2013
Accepted 1 October 2013
DOI 10.1108/CG-01-2013-0013
Abstract
Purpose – This paper aims to investigate the relationship between internal governance structure and
financial performance of listed Spanish companies. The effectiveness of the board of directors is
analyzed through the use of different variables: size, composition, duality, number of annual meetings
and busyness of the directors. The financial performance is measured by return on assets (ROA), return
on equity (ROE) and Tobin’s Q.
Design/methodology/approach – Our study is addressed through the use of a multi-theoretical
approach followed by an empirical analysis. Schematic literature review serves as a basis for setting our
hypotheses. We conduct the empirical part of the study by applying these to the listed companies in the
Madrid Stock Exchange. An econometric model (multiple regression) is used to test the relation
between board structure and financial performance.
Findings – Empirical: We conclude that in the three estimated models, two of the dependent variables,
ROE and ROA, have an explanatory value. The relationship between the number of the boards of
directors’ meetings and performance has proved to be negative. Theoretical: Ample literature on
corporate governance leads to two conclusions: First, corporative–financial relations must be studied
by a multi-theoretical approach. Second, future research must be made only on specific studies
coincident with the majority of their characteristics (country, type of firm, type of statistical model [. . .]).
Research limitations/implications – Future research will try to cover gaps, expanding this study in
both space and time.
Practical implications – The number of Spanish companies’ boards meetings is very high. As shown
in our study, holding more than one meeting a month does not guarantee greater financial returns; the
board can effectively establish its strategic lines of business by meeting up to 12 times per year.
Social implications – The results show a negative relationship between ROE and the number of
meetings, which may be linked to the country’s business culture, which traditionally has a higher number
of annual meetings when compared to neighboring countries. Perhaps, this is an indicative symptom of
the inefficiency associated with the Spanish system.
Originality/value – Theoretical review is performed with two aims: first, to establish our research
hypotheses, and second, to reflect on future research by fine-tuning the abundant previous studies.
Keywords Corporate governance, Financial performance, Board of directors, Business
performance
Paper type Research paper
1. Introduction
In the business press, news constantly appears about companies with conflicting boards
of directors due to members having different interests. In Spain, the case of The Repsol oil
company is well-known for the savage struggle that took place for control of the members
of the board. In addition, the conflict between The Iberdrola electrical company and the
ACS construction group and services where a lawsuit has been filed by the latter for the
amendments to the Statutes that had intended to diminish up to 14 members of the board
to prevent the admittance of a greater shareholder (with 19 per cent ownership) is currently
on trial. From an academic point of view, certain members’ opportunistic behaviour, who
rather than ensuring the smooth running of the business only pursue short-term economic
VOL. 14 NO. 4 2014, pp. 485-503, © Emerald Group Publishing Limited, ISSN 1472-0701 CORPORATE GOVERNANCE PAGE 485
 interest and do not think about the future of the company or of its long-term development,
is not understood. This has led us to initiate this investigation that, without wishing to be
pretentious in its objectives, does wish to shed some light on the controversial field of the
structures of the board and its relation with the financial profitability of the company.
The harsh economic crisis that has plagued Spain since 2008 is an important incentive to
work on this subject which, we believe, can contribute something useful to the company
itself, the investors and the government. The global nature of the economy and the
possibility of investing in any capital market in the world make it necessary to have this
information available to facilitate the decision-making process when investing in company
shares of one country or another. These types of studies may also have a predictive value,
as indicated by some authors (Conyon et al., 2011), to highlight the usefulness of research
in this field to prevent future financial crises. It is appropriate to point out that Spain is a key
country in the European Union and in the Organisation for Economic Co-operation and
Development (OECD), and on this basis, the group of companies on which this study deals
has an important international dimension which means the results have an interest both
within and outside our borders.
In recent years, there has been a sharp escalation around the world in research on
corporate governance and, in particular, on the subject in which we have focused our
study, that is, the relation between the structure of the board of directors and the profitability
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of the business (Bhagat and Black, 1999; Jackling and Johl, 2009; Judge et al., 2003; Lefort
and Urzúa, 2008; O’Connell and Cramer, 2010; Platt and Platt, 2012; Yoshimori, 2005;
Zahra and Pearce, 1989). One would expect to find a clear relationship between both
constructs; however, as Nicholson and Kiel (2007) already pointed out in their day, the link
between the two investigated ideas is not clearly identified, and this leads us to continue an
in-depth study.
The paper is organized as follows. The next section provides a multi-theoretical framework
centered on the researched question. Section 2 includes a review of the literature which
has been structured in a table with the main characteristics of previous studies, the most
important of which are the type of statistical analysis, measurement of profitability and the
results of the hypothesis (research findings). The latter serves as the basis to predict
the sign of our hypothesis. Section 3 describes the data selection procedure and presents
the multiple variable regression models used in the empirical research. Section 4 exhibits
results of the study. Conclusions and future lines of research are discussed in Section 5.

2. Theoretical review and formulation of hypotheses

The main theories that have helped us understand the role that directors can play in
contributing to the performance of the organizations they govern are agency theory,
stewardship theory and the resource dependency theory. There are also studies that
analyze corporate governance from the stakeholders’ perspective (interest groups) or from
an institutional approach. Other authors (Nicholson and Kiel, 2007; Preston, 1998)
combined in their studies various theories with a comparative and/or an integration
disposition.
Agency theory (Jensen and Meckling, 1976; Fama, 1980; Fama and Jensen, 1983) argues
that the principal (shareholder) has the maximization of the value of the company as a
high-priority and delegates management on to the agent (manager) who is assumed
rational, individualistic and averse to risk and effort and, hence, whose objectives may be
contrary to the principal’s interests. The assumptions of agency theory conveniently adjust
themselves to the structures of the companies in developed countries and, particularly, to
those of Anglo–Saxon origin with a structure of dispersed ownership, where a separation
between ownership and control exits. This paper is based on the theory that, first, investors
rely on management teams to make strategic business decisions and, second, their need
to deter managers from pursuing individualistic goals at the expense of shareholders’

PAGE 486 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

 interests (Eisenhardt, 1989). The possible relationship between the members of the board
(referred to as principal) and the financial profitability of the company (referred to as agent
management) forms the gist of our study.
Theories on corporate governance have evolved from regulatory approaches to others of
a more cognitive and behavioral character (Pugliese et al., 2009). Muth and Donaldson
(1998) point out that from an occupational psychology perspective, in stewardship theory,
in contrast to agency theory, there are important reasons (manager ethics, job satisfaction
and need for recognition) that avoid a clash of interests between the owners and the
managers and to ensure a specific structure of the board to generate a greater financial
return. This develops as a consequence of the managers developing their work in a
transparent and efficient manner. These facts, taken together, go some way in addressing
the conflict of interest that exists between principal and agent, as presumed in agency
theory.
Under the stewardship approach, the managers are trusted individuals and good stewards
of the resources entrusted to them (Donaldson, 1990; Donaldson and Davis, 1991, 1994).
The followers of this school of thought (Davis et al., 1997) assume a strong relationship
between organizational success and satisfaction of the principals, focusing on structures
that facilitate and reinforce the power of the executives, leaving supervision and control in
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the background. This theory considers that managers are naturally trustworthy people
(Donaldson and Preston, 1995) and that agency costs will be minimized because the
executives, for fear of losing their reputation, will not act against the interests of the
shareholders (Donaldson and Davis, 1994). The conflict of interest dilemma is not an
issue under this approach, as the underlying principle assumes a uniformity of
objectives is pursued by both principal and agent.
Boards of directors in this current research are analyzed under the approach of resources
dependence theory (Barroso et al., 2011), according to which the board is a vital link
between the company and the resources needed to maximize performance (Pfeffer, 1972;
Pfeffer and Salancik, 1978). A clear definition about what is an important resource does not
exist because this theory is approached from sociological and administrative disciplines
(Pettigrew, 1992). In itself, the board is an important resource for the company, especially
in its relation with the external environment (Palmer and Barber, 2001) due to its ability in
obtaining a sustainable competitive advantage over its competitors (Barney, 1991; Grant,
1991). A logical consequence leads to the basic premise that the more diverse the board,
the greater the benefit for all the participants.
If we take into account the interests of the whole of society, stakeholders’ theory makes an
important contribution to this paper. The healthy financial results of the company and their
direct relationship with the correct structure and operation of the board favor shareholders,
employees, clients, suppliers and all those other elements that can be affected by the
decisions taken in the company. The academic debates over this approach (Donaldson,
1999; Donaldson and Preston, 1995; Freeman, 1984; Jones and Wicks, 1999; Kaufman and
Englander, 2011; Pesqueux and Damak-Ayadi, 2005; Preston, 1998; Preston and
Donaldson, 1999; Sternberg, 1997) have occurred over a long period. From our
perspective, stakeholder theory is an integrative model that avoids the limitations outlined
above: “the alleged” conflict between principal and agent, the “hypothetical” bonanza of
the steward and the “limited” role of the board in resource dependency theory. The board
is understood to represent and safeguard the interests all stakeholders.
The institutional theoretical perspective developed by Scott (2001) provides an appropriate
framework for analyzing corporative and financial interrelationships. The key point within
this theory is that all stakeholders are looking for legitimacy and/or reinventing legitimate
norms within the institutional environment (Judge et al., 2010). If organizations pursue
legitimacy over economic efficiency (Carver, 2010) and corporate governance is integrated

VOL. 14 NO. 4 2014 CORPORATE GOVERNANCE PAGE 487

 in an economic, cultural and social context, then social welfare and the balance between
the groups of interest acquire supreme importance (Johanson and Ostergren, 2010).
The theoretical contribution made by Donaldson (1999), denominated organizational
portfolio theory, which focuses directly on the determinants and the consequences of
board composition. This theory helps understand the dynamic relationship between the
board’s characteristics and the performance of the company (Heslin and Donaldson,
1999). These authors present a model on the reciprocal influence of the composition of the
board based on risk and performance and identify factors that prevent the company from
obtaining low levels of performance. They point out that boards may be stronger and more
independent by using diversification, divisional and divestment strategies.
In this work, the study of the board and its relationship with recent business performance
is analyzed from a multi-theoretical perspective that integrates the different views raised
above. The academic and business area is becoming increasingly conscious of the
multiple tasks carried out by the directors and of the strong influence of its internal
processes on the company’s results (Castro et al., 2009; Macus, 2008). We believe it is
imperative to agree on an academic global theory of corporate governance useful in an
international context and which may serve as a conduit to support extensive research
presently being carried out in this field, as recently highlighted by Zattoni and Van Ees
(2012). Following this recommendation, Table I illustrates a review of recent literature that
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fulfils, on the one hand, the objective of analyzing the different theoretical approaches that
underlie these works and, on the other hand, provides a basis for the formulation of our
hypotheses.
As the necessary connection between two large areas, strategic and financial, in the
management of a company has been highlighted, a careful study of the structures and
forms of the internal operation of the boards of directors and their relationship with the
financial performance of the company are necessary. The structure and functioning of the
board result in actions that have repercussions on the company. For this reason, we will
focus on various factors that are believed to be significant and may relate to the financial
performance of the company. Particularly, five characteristics are to be treated:

1. size (BOARDSIZE);
2. activity (MEET);
3. composition (%CEI/OUTSIDERS);
4. posts held (BUSYNESS); and
5. duality of the President (DUALITY).
For the formulation of the hypotheses and to determine its specific positive or negative
relation, we have performed an international review based on previous research
experience in the same type of analysis as ours. For this purpose, studies have been
considered that raise similar hypotheses as ours and include a quantitative empirical part
where its dependent variable is any one of the performance measures that are commonly
used, and which are, in some cases, the same as used in our study (ROA: return on assets,
ROE: return on equity and Tobin’s Q)[1].
Table I shows the results of the main studies.
As we can see in Tables I and II, results for the first three hypotheses have been mostly
positive. However, for the H4 and H5, based on the set of authors analyzed, we cannot
conclude in one sense or another. Hence, we take into account the corporate governance
recommendations (CNMV, 1998; CNMV, 2003; CNMV, 2006) and establish the following
five hypotheses for our study[2]:
H1: (BOARDSIZE) The size of the board and the company performance have a positive
relationship.

PAGE 488 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

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Table I Literature review

Listed on the
Number of Hypothesis Theories stock exchange Profitability
Study Country name companies Period Statistical analysis H1 H2 H3 H4 H5 Argumentation Complete sample Measurement

Abdullah, 2004 Malaysia 313, 321, 318 1994-1996 t-test, Spearman’s WR WR Anglo–American approach YES ROA, ROE
correlation and agency and hegemony
theories
Alves and Portugal 60, 44, 50 1998, 2000, Two-stage multivariate ⫹ ⫹ – YES ROA
Mendes, 2004 2001 regression model
Ameer et al., Malaysia 277 2002-2007 Linear regression ⫹ Agency, Stewardship and YES Tobin’s Q
2010 Resource dependence
theory
Baliga et al., USA 500 1990 Regression analysis and WR Agency theory NO ROA, ROE
1996 Wilcoxon test
Barroso et al, Spain 119 1993-00 “Zero order” correlation ⫹ – Agency, Stewardship, YES Economic profitability
2009 and regression analysis Resource dependence as a control variable
theories
Barroso et al, Spain 45 2008 (gc) Regression analysis ⫹ – Resource dependence YES –
2011 2009 (rf) theory
Bhagat and USA 934 1991 Ordinary least square – Empirical study NO ROA, Tobin’s Q
Black, 2002 (OLS) regression and
three stages
Brick and USA 5228 1999-05 three-stage multivariate ⫹ Empirical study NO ROA, Tobin’s Q
Chindambaran, regression analysis
2010
Crespi, 2010 Spain 124 2009 Multiple linear WR WR WR WR WR – YES ROA, ROE, Tobin’s Q
regression
Dalton et al., International 53,075 1972-1996* Meta-analytic study WR WR WR Agency and Stewardship NO ROA, ROE, Tobin’s Q
1998 theories
Dalton et al., International 20,62 1972-1996* Meta-analytic study ⫹ Agency, Stewardship, NO ROA, ROE, Tobin’s Q
1999 Resource dependence
theories
Daraghma and Palestine 28 2005-2008 Least squares simple – ⫹ – YES Return on revenues
Alsinawi, 2010 and multiple linear or sales
regression
De Andrés East Europe and 450 1996 OLS regression and – WR WR Agency theory NO M/B, ROA, Version of

VOL. 14 NO. 4 2014

et al., 2005 Northamerica three stages Tobin’s Q
Dey and India Multiple regression – WR Agency theory YES Market Value Added
Chauchan, and Tobin’s Q
2009
Di Pietra et al., Italy 77 1993-00 OLS regression WR ⫹ Agency theory YES M/B
2008
Dowell et al., International 227 2000-2002 Exponential model – ⫹ Agency theory YES Measure of financial
2011 distress
Drakos and Greece 146-232 2000-2006 Analysis of – WR WR Agency theory YES ROA, Tobin’s Q
Bekiris, 2010 simultaneous equations

CORPORATE GOVERNANCE
Ehikioya, 2009 Nigeria 107 1998-2002 Regression model WR – Agency theory YES ROA, ROE, Tobin’s Q
(continued)

PAGE 489
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Table I
Listed on the
Number of Hypothesis Theories stock exchange Profitability
Study Country name companies Period Statistical analysis H1 H2 H3 H4 H5 Argumentation Complete sample Measurement

Elsayed, 2007 Egypt 92 2000-04 OLS regression ⫹ Agency, Stewardship and YES Tobin’s Q, ROA

PAGE 490 CORPORATE GOVERNANCE

Contingency theory
Fernandez et Spain 67 1993 OLS regression ⫹ ⫹ Agency theory YES Tobin’s Q
al., 1998
Ferris et al., USA 3190 1995 Logistic and multi- WR Agency theory NO M/B
2003 variate regression
analysis and Wilcoxon
test

VOL. 14 NO. 4 2014

Fich and USA 508 1989-95 Regression analysis and – – NO M/B
Shivdasani, Wilcoxon test
2006
Gill et al., 2009 International Text revision/review WR WR WR WR WR Agency theory NO ROA, ROE, Tobin’s Q
Guest, 2009 United Kingdom 2746 1981-2002 OLS regression, fixed – – YES ROA, Tobin’s Q
effects and generalized
moments model
Hu et al., 2010 China 304 2003-2005 Structural equations – – YES Tobin’s Q
model
Jackling and India 180 2005-2006 Three-stage least ⫹ WR WR – WR Agency and Resource YES ROA, Tobin’s Q
Johl, 2009 squares multiple dependence theories
regression
Judge et al., Russia 45 2002 Multiple linear – Agency theory and NO Financial Profitability
2003 regression Institutional Perspectives
Kaczmarek UK 350 1999-2008 Linear mixed-effects ⫹ WR Agency theory and Social YES Tobin’s Q
et al., 2011 model identity theory
Kiel and Australia 348 2003-2004 Regression analysis ⫹ WR Resource dependence YES WTSR
Nicholson, theory
2003
Kota and India 106 2005-2007 Regression analysis – WR ⫹ Agency, Stewardship and YES Tobin’s Q
Tomar, 2010 Managerial hegemony
theories
Larmou and International 257 1996-2000 Regression analysis ⫹ ⫹ WR – NO M/B and operating
Vafeas, 2010 income before
depreciation divided
by total assets
Lehn et al., USA 82 1935-2000 Regression analysis WR WR Agency theory YES M/B
2009
Lin et al., 2009 China 461 1999-02 data envelopment ⫹ ⫹ WR Agency theory YES Sales revenue
analysis (DEA)
(continued)
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Table I
Listed on the
Number of Hypothesis Theories stock exchange Profitability
Study Country name companies Period Statistical analysis H1 H2 H3 H4 H5 Argumentation Complete sample Measurement

McIntyre et al., Canada 300 2003 Cross-sectional ⫹ Agency and behavioral YES ROA, Tobin’s Q, EVA
2007 regression analysis theories
Miwa and Japan 1000 1986-1994 OLS regression and WR Reformist theory YES Tobin’s Q and ROI
Ramseyer, two-stages estimates
2005
Mura, 2007 United Kingdom 672/6340 1991-2001 Generalized moments ⫹ – YES Tobin’s Q
model
ÓConnell and Ireland 77 2001 OLS estimation – ⫹ Agency theory YES RET and FINANCIAL
Cramer, 2010 Q
Phan et al., Singapore 191 1997 Regression analysis ⫹ Resource dependence YES ROE
2003 theory
Raja and India 40 2005 Factorial analysis and ⫹ ⫹ Agency theory YES Tobin’s Q
Kumar, 2008 least square regression
Reddy et al., New Zealand 50 1997-2007 Analysis of OLS ⫹ ⫹ Agency theory YES ROA, Tobin’s Q, M/B
2010 regression and two
stages
Schmid and Switzerland 152 1993-2000 Analysis of OLS WR Agency theory YES Tobin’s Q
Zimmermann, regression and two
2008 stages
Stanwick and Canada 47 2007 Regression analysis – Agency and resource NO Ratio of sales to net
Stanwick, 2010 dependence theories income
Lam, T.Y and Hong-Kong 123 2003 Pearson’s correlation ⫹ Agency and stewardship YES ROA, ROE, ROCE,
Lee, S.K. 2007 analysis t-test theories M/B
Uadiale, 2010 Nigeria 30 2007 OLS estimation ⫹ ⫹ – Agency theory YES ROE, ROCE
Yammeesri Thailand 245 2004 Pearson’s correlation WR WR – Agency theory YES Tobin’s Q
and Herath, and cross-sectional

VOL. 14 NO. 4 2014

2010 regression

Notes: ROCE: return on capital employed; M/B: market value to book value; Version of Tobin’s Q: ratio book value of debt plus the market value of equity to the book value of assets; WTSR: total shareholder
return weighted for risk; EVA: economic value-added; ROI: return on investments; RET: one year raw stock market return; FINANCIAL Q: sum of market capitalization plus long- and short-term debt over the
book value of total assets; ⫹: positive relation; ⫺: negative relation and WR, without relation.

CORPORATE GOVERNANCE
PAGE 491
 Table II Results of literature
Result H1: BOARDSIZE H2: MEET H3: INDEPENDENCE H4: BUSYNESS H5: DUALITY

Negative 8 0 4 2 5
Positive 12 3 10 2 5
No relation 5 4 14 5 9

H2: (MEET) There is a positive relationship between the activity of the board of directors
and the company’s performance.
H3: (%CEI/OUTSIDERS) The proportion of independent outside directors and company
performance exhibit a positive relationship.
H4: (BUSYNESS) The relationship between the level of occupation of directors and
company performance displays a negative association.
H5: (DUALITY) There is a negative relationship between the dual character of the
Chairperson and the company’s performance.

3. Methodology
Sample and data collection
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The initial sample of data for this study was obtained from the listed companies on the
Madrid Stock Exchange. The information obtained was through the Stock Market’s own
Web pages and the National Securities Market Commission[3]. Initially, the number of
companies that were listed in 2009 on the continuous market and on the floor (excluding
LATIBEX) amounted to 146. Banks and financial companies were excluded from our
sample due to their different accounting structure that makes it difficult to calculate the
financial ratios used in the study and following previous authors’ example in this type of
analysis (Black et al., 2010; Jackling and Johl, 2009). To successfully gather data of the
structure of the board of directors, we primarily focused on Corporate Governance Reports
published on companies’ Web sites, through the Comisión Nacional del Mercado de
Valores (CNMV), or directly requested from the companies themselves. To gather the
financial ratios of these companies, we have used the Analysis System of Iberian Balances
(SABI)[4] data base (Mateos et al., 2011) and AMADEUS[5]. As a result, we have a set of
121 companies with all their pertinent data (corporative and financial).
Table III shows how our samples of 121 companies are classified into sectors and
sub-sectors. There are three sectors, with similar percentages, that group 73.56 per cent
of the companies:

1. Consumer Goods sector (25.62 per cent).

2. Basic Materials, Industry and Construction sector (26.45 per cent).
3. Financial and Real Estate Services sector (21.49 per cent).
The remainder are distributed among the sectors of Oil and Energy (9.00 per cent),
Consumer Services (13.22 per cent) and Technology and Telecommunications (4.13
per cent).

Multi-variable regression model

The relationship between firm performance and board structure is analyzed with the
following basic model (Bhagat and Bolton, 2008; Guest, 2009):
PERFORMANCE ⫽ ␣ ⫹ ␤1 BOARDSIZE ⫹ ␤ 2% CEI/OUTSIDERS ⫹ ␤ 3 MEET
⫹ ␤ 4 DUALITY ⫹ ␤ 5 PWCEO ⫹ ␤ 6 AVERAGEBUSYIN
⫹ ␤ 7 AVERAGEBUSYOUT ⫹ ␤ 8 LNASSET ⫹ ␤ 9 LNAGE
⫹ ␤ 10 ROA08 ⫹ ␤ n Industry Dummies ⫹ €

PAGE 492 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

 Table III Number and proportion of firms by industry classification
Sector Subsector Number Percentage

Consumer Goods Food and Drink 11

Others B. Consumers 2
Paper and Graphical Arts 5
Pharmaceutical Products 7
Textile/Clothing/Footwear 6
Total Consumer goods 31 25.62
Oil and Energy Gas and Electricity 5
Renewable Energies 4
Oil 2
Total Oil and Energy 11 9.00
Consumer Services Retail Commerce 1
Media and Advertising 4
Leisure/Tourism/Hospitality 3
Other Services 5
Transport/Distribution 2
Highways/Car parks 1
Total Consumer Services 16 13.22
Basic/Industry/Construction Materials Capital Goods 6
Construction 8
Chemical Industry 2
Engineering and Others 8
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Construction Materials 2
Mineral/Metals/Transformation 6
Total Basic/Industry/Construction Materials 32 26.45
Financial and Real Estate Services Portfolio and Holding 5
Real Estate and Others 17
Insurance 2
Investment Services 2
Total Financial and Real Estate Services 26 21.49
Technology and Telecommunications Electronics/Software 3
Telecommunications and Others 2
Total Technology and Telecommunications 5 4.13
Total general 121 100

To assess the company performance, we use three different financial ratios: ROA, ROE and
Tobin’s Q, following, among others, Beiner et al. (2006); Guest (2009); Jackling and Johl (2009);
Crespí (2010) or Drakos and Bekiris (2010) in their recent analyses. The ROA variable is the
ratio of operating benefit before depreciation and provisions divided by total assets. The ROE
variable is the result of dividing the operating benefit before depreciation and provisions
between the equity capital, and Tobin’s Q is the ratio of the firm’s market value to its book value.
The firm’s market value is calculated as the book value of assets minus the book value of equity
plus the market value of equity (De Andres and Vallelado, 2008; Perfect and Wiles, 1994). The
multiple regression model uses the following independent variables:
 the size of the board, that is the number of directors involved in the deliberations
(BOARDSIZE);
 the percentage of independent outside directors (%CEI/OUTSIDERS);
 the number of annual board meetings (MEET);
 the directorships (BUSYNESS that includes BUSYIN and BUSYOUT); and
 the leadership of the Chairperson (DUALITY and CEOPOWER).
The respective performances (ROA, ROE and Tobin’s Q) for 2008, the firm’s size, the age
and a dummy variable to represent each company’s sector are used as control variables.

4. Data analysis and results

The explanatory variables used in the model (Table IV) relate to some of the companies’ board
of directors’ features. The size of the board of directors is one of them. In Spain, the last Unified

VOL. 14 NO. 4 2014 CORPORATE GOVERNANCE PAGE 493

 Table IV Descriptive statistics
N Minimum Maximum Mean SD

Dependent variables
ROE2009 121 ⫺562.3 111.9 ⫺8.91 66.65
ROA2009 121 ⫺54.7 33.30 ⫺0.63 9.32
QTOBIN12/2009 121 ⫺3.79 2.63 2.29 3.10
Independent variable
BODSIZE 121 3 24 1.71 3.66
%CEI/OUTSIDERS 121 0 8 3.33 16.16
MEET 121 3 22 9.54 3.18
DUALITY 121 0 1 0.56 0.50
PWCEO 121 0 1 0.13 0.34
AVERAGEBUSYIN 121 0 13.10 1.60 2.51
AVERAGEBUSYOUT 121 0 2.90 0.41 0.47
Control variable
LNASSET 121 2.26 11.59 6.92 2.04
LNAGE 121 1.10 5.65 3.48 0.99
ROE2008 121 ⫺619.9 344.10 ⫺7.63 86.28
ROA2008 121 ⫺38.70 32.40 0.38 9.58
QTOBIN12/2008 121 ⫺0.94 5.19 2.45 5.00
INDUSTRIALSECTOR 121 0 1 – –
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Good Governance Code (UGGC) published by CNMV (2006) recommends that the size of the
board (BODSIZE) should not be ⬍ 5 or ⬎ 15. In our sample, the average is 10.71, with a
minimum of 3 and a maximum of 24. Interestingly, there are only two companies in our sample
that have ⬍ 5 members and 13 that have ⬎ 15. Therefore, 88 per cent of the companies fulfill
the UGGC recommendations. Another explanatory variable is the percentage of independent
outside directors (%CEI/OUTSIDERS); UGGC recommends a minimum of one-third of all of the
directors. The mean of this variable (30.33 per cent) does not reach the recommended
minimum (33.33 per cent) and of all the companies, only 45 per cent of them had the
recommended minimum. Of the remaining 55 per cent, there are 10 companies that do not
have any independent outside directors on their board. For the number of annual meetings
(MEET), there aren’t any other recommendations by the UGGC, other than to maintain only what
is necessary for the proper functioning of the board. In our sample, the average is 9.54 with a
maximum and minimum of 22 and 3, respectively. As for the leadership of the board, in 56 per
cent of the firms, there exists duality between the chairperson and the chief executive officer of
the company (DUALITY) and in 13 per cent of these cases that person holding both posts acts
as sole internal advisor of the board (PWCEO). The UGGC makes no recommendation on
whether or not both posts should be held by the same person, but it does recommend that in
case of duality, an independent director be authorized to take over some tasks, such as
including new items on the agenda of board meetings. In our sample, the minimum value of
additional posts for each board member both within (AVERAGEBUSYIN) and outside
(AVERAGEBUSYOUT) the group is 0. The maximum value is 13.1 for posts within companies
of the group and 2.9 for posts outside of the group. The average value of additional posts is 1.6,
in the first case, and 0.4 in the second. There are only six companies in the sample in which the
directors exclusively hold posts on the board of the company. On this issue, the UGGC
recommends that the number of posts be limited, so as not to interfere with the board’s tasks.

Table IV shows the descriptive statistics of the explained and explanatory variables.

The dependent financial variables show that the ROE value (ROE2009) ranges between a
maximum of 111.9 and a minimum of ⫺562.3, with a mean of ⫺8.91. The ROA (ROA2009)
oscillates between a maximum and a minimum of 33.3 and ⫺54.7, respectively, with a mean
of ⫺0.63. Finally, Tobin’s Q (QTOBIN12/2009) varies between 2.63 and ⫺3.79 with a mean of
2.29.
The results of Pearson’s correlation, shown in Table V, indicate that there is a significant
relationship between the explanatory variable BODSIZE and the financial variables

PAGE 494 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

 Table V Pearson’s correlations for variables in the regression model
N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

ROE2009 121 1
ROA2009 121 0.53** 1
QTOBIN2009 121 ⫺0.16 0.00 1
BODSIZE 121 0.20* 0.19* ⫺0.06 1
%CEI/OUTSIDERS 121 0.11 0.08 ⫺0.02 0.07 1
MEET 121 ⫺0.35** ⫺0.07 ⫺0.02 0.13 0.14 1
DUALITY 121 ⫺0.04 ⫺0.00 ⫺0.01 0.03 0.24** 0.10 1
PWCEO 121 0.01 ⫺0.11 ⫺0.11 ⫺0.00 0.25** 0.17 0.34** 1
AVERAGEBUSYIN 121 ⫺0.02 0.03 0.04 ⫺0.05 0.09 ⫺0.02 0.00 ⫺0.17 1
AVERAGEBUSYOUT 121 0.05 0.16 ⫺0.07 0.27** 0.11 0.10 0.01 ⫺0.05 0.12 1
LNASSET 121 0.07 0.24** ⫺0.06 0.67** 0.27** 0.25** 0.10 0.08 0.07 0.27** 1
LNAGE 121 0.03 0.13 0.11 ⫺0.10 ⫺0.05 0.02 0.11 0.01 ⫺0.04 ⫺0.00 ⫺0.09 1
ROE2008 121 0.38** 0.35** ⫺0.04 0.13 ⫺0.10 ⫺0.04 ⫺0.05 0.09 ⫺0.20* 0.10 0.07 0.00 1
ROA2008 121 0.58** 0.83** ⫺0.01 0.19* 0.07 ⫺0.19* ⫺0.03 ⫺0.19* 0.01 0.14 0.10 0.18 0.35** 1
QTOBIN12/2008 121 0.18* 0.02 0.24** ⫺0.06 0.09 ⫺0.11 0.08 ⫺0.10 0.29** ⫺0.10 ⫺0.01 0.12 ⫺0.60** 0.06 1

Notes: ** Correlation is significant at the 0.01 level; *Correlation is significant at the 0.05 level

ROE2009 (p 0.028 ⬍ 0.05) and ROA2009 (p 0.034 ⬍ 0.05). Additionally, there is a very
significant relationship between the number of annual meetings, MEET and the ROE2009
(p 0.00 ⬍ 0.01).
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To study the relationship between the explanatory variables, the characteristics of the
board and the explained variables, ROE, ROA and Tobin’s Q, a multiple linear regression
analysis has been carried out for each of the financial variables. Thus, the values of the
coefficients i have been retrieved to build a least square regression equation for the model.
We also look for the constant term of the equation and the random component that
represent the residuals. The residuals indicate that part which the model by itself cannot
explain (Neter et al., 1985; Petersen, 2009).
In the case of the ROE2009 variables (Table VI), the results of the analysis indicate that
there is a significant linear relationship between the explanatory variables and the
explained ones (F ⫽ 3.82 and p ⬍ 0.05), and the model explains 26 per cent (adjusted
R2 0.26) variance of the dependent variable. The least square regression equation
coefficients, i, are reflected in the column “Non-standardized Coefficients”. The values

Table VI Results of multiple linear regression analysis. Dependent variable: ROE2009

Unstandardized Standardized Multicollinearity
Predicted coefficients coefficients statistics
Variable sign Coefficient Standard error Beta t-statistic p Tolerance VIF

(Constant) 28.08 47.82 0.59 0.56

BODSIZE ⫹ 4.39 2.03 0.24 2.16* 0.03 0.50 2.01
%CEI/OUTSIDERS ⫹ 0.72 0.39 0.17 1.82 0.07 0.68 1.47
MEET ⫹ ⫺8.32 1.77 ⫺0.40 4.69*** 0.00 0.86 1.16
DUALITY – ⫺3.53 11.99 ⫺0.07 ⫺0.29 0.77 0.77 1.30
PWCEO – 6.78 17.85 0.06 0.38 0.70 0.74 1.35
AVERAGEBUSYIN – 1.86 2.58 0.06 0.72 0.47 0.77 1.30
AVERAGEBUSYOUT – ⫺0.64 14.05 ⫺0.00 ⫺0.04 0.96 0.82 1.22
LNASSET ? ⫺2.75 4.13 ⫺0.08 ⫺0.66 0.51 0.38 2.59
LNAGE ? 5.90 5.77 0.09 1.02 0.31 0.85 1.18
ROE2008 ⫹ 0.28 0.07 0.37 4.26*** 0.00 0.83 1.20
Adjusted R2: 0.26
F-statistic: 3.82
Probability (F-statistic): 0.00
Durbin Watson: 2.17
N: 121
Notes: * Statistically significant at less than the level 0.10; ** statistically significant at less than the level 0.05; *** statistically significant
at less than the level 0.001; based on one-tailed (two-tailed) test for variables where direction of relationship with dependent variable
is (is not) predicted. All estimations include dummy variables for industry sector.

VOL. 14 NO. 4 2014 CORPORATE GOVERNANCE PAGE 495

 gathered in the column “Standardized Coefficients Beta” indicate the relative
importance of the different variables. In the present case, the variables BODSIZE (Beta
0.24) and MEET (Beta 0.41) are those that have greater importance (the Beta values
have the highest absolute value). The statistical t and its significance for each
coefficient indicate that by rejecting the null hypothesis the regression coefficient value
is zero in the data population. In our analysis, only the null hypothesis for the variables
BODSIZE (⫽ 4.39, t ⫽ 2.16, p ⬍ 0.05) and MEET (⫽ ⫺8.32, t ⫽ 4.69, p ⬍ 0.01) are
rejected and, therefore, are the only variables that significantly contribute to explain the
dependent variable. The values that express the multi-collinearity (variance inflation
factor; VIF) of the independent variables are ⬍ 10 ascertaining that there is no such
problem (Myers, 1990). The Durbin–Watson statistical indicates independence
between the residuals when it encompasses values between 1.5 and 2.5 (Greene,
2000). In this case, such a condition is met (DW ⫽ 2.17)
A significant linear relation is found for the ROA2009 variable (Table VII) (F ⫽ 2.68 and
p ⬍ 0.05). The model, as a whole, explains 71 per cent (adjusted R2 0.71) of the
variance of the dependent variable. The variables BODSIZE (Beta 0.14), LNASSET
(Beta 0.22) and ROA2008 (Beta 0.88) are the most important (the Beta values are the
highest in absolute value). The statistical t and its significance indicate, in this case, that
only the null hypothesis is rejected for the variables BODSIZE (⫽ ⫺0.36, t ⫽ ⫺1.99,
p ⬍ 0.05), LNASSET (⫽ 1.00, t ⫽ 2.78, p ⬍ 0.01) and ROA2008 (⫽ 0.85, t ⫽ 15.59, p
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⬍ 0.01) and, therefore, are the only variables that significantly contribute in explaining
the dependent variable. The values reflected in the VIF column of Table VII are ⬍ 10 in
all the cases, hence, as in the previous analysis, there is no problem with
multi-collinearity. Durbin–Watson statistical indicates independence between the
residuals (DW ⫽ 1.91).
Significant linear relationship was not found in the variable QTOBIN2009 (F ⫽ 0.86 and
p ⬎ 0.05).

5. Conclusions and future research

We conclude that in the three estimated models, two of the dependent variables, ROE2009
and ROA2009, have explanatory value (adjusted R2: 0.252 and 0.698, respectively). In the

Table VII Results of multiple linear regression analysis. Dependent variable: ROA2009
Unstandardized Standardized Multicollinearity
Predicted coefficients coefficients statistics
Variable sign Coefficient Standard error Beta t-statistic p Tolerance VIF

(Constant) ⫺0.27 4.19 ⫺0.06 0.95

BODSIZE ⫹ ⫺0.36 0.18 ⫺0.14 ⫺1.99* 0.04 0.49 2.05
%CEI/OUTSIDERS ⫹ ⫺0.05 0.03 ⫺0.09 ⫺1.51 0.13 0.70 1.45
MEET ⫹ 0.12 0.16 0.04 0.78 0.43 0.82 1.22
DUALITY – 0.37 1.05 0.02 0.36 0.72 0.77 1.30
PWCEO – 1.68 1.60 0.06 1.05 0.29 0.71 1.4
AVERAGEBUSYIN – 0.14 0.22 0.03 0.64 0.52 0.80 1.25
AVERAGEBUSYOUT – 0.63 1.23 0.03 0.51 0.61 0.82 1.22
LNASSET ? 1.00 0.36 0.22 2.78** 0.01 0.39 2.58
LNAGE ? ⫺0.1 0.51 ⫺0.01 ⫺0.19 0.85 0.82 1.22
ROA2008 ⫹ 0.85 0.05 0.88 15.59*** 0.00 0.76 1.31
Adjusted R2: 0.71
F-statistic: 2.68
Probability (F-statistic): 0.00
Durbin–Watson: 1.91
N: 121
Notes: * Statistically significant at less than the level 0.10; ** statistically significant at less than the level 0.05; *** statistically significant
at less than the level 0.001; based on one-tailed (two-tailed) test for variables where direction of relationship with dependent variable
is (is not) predicted. All estimations include dummy variables for industry sector.

PAGE 496 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

 analysis, the Beta coefficient of ROE2009 is shown to be positive and of ROA2009 negative.
Although international researchers obtained a positive relationship for the first hypothesis,
BOARDSIZE (Alves and Mendes, 2004; Jackling and Johl, 2009; Kiel and Nicholson, 2003;
Larmou and Vafeas, 2010; Uadiale, 2010), others like Dalton et al. (1998) and Laing and
Weir (1999) coincided with our results by concluding in their meta-analytic studies that a
clear relationship between both constructs could not be established. Contrary to what was
predicted in the second hypothesis, the relationship between the number of the boards of
directors’ meetings (MEET) and performance (measured in terms of ROE) has proved to be
negative. Vafeas (1999) had already suggested such a relationship between these two
parameters. In the Spanish case, the explanation may be found in the high number of
meetings held by Spanish companies in comparison to other countries. In this case, the
mean is 9.54, having a high number of companies that hold ⬎12 meetings per year, as
recommended by the Aldama Report (CNMV, 2003). This finding is corroborated in the
study of De Andrés et al. (2005) and, lately, in the study of Spencer Stuart (2011), where it
is observed that the number of Spanish companies’ boards meetings is the highest, along
with the USA, of the 10 OECD analyzed countries. The UGGC does not establish a specific
number of meetings per year; the board should meet on demand to carry out their functions
effectively (CNMV, 2006). As shown in our study, holding more than one meeting a month
does not guarantee greater financial returns; the board can effectively establish its
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strategic lines of business by meeting up to 12 times per year.

This high number of meetings might be related with the Spanish culture, where social and
personal relations are deeply rooted and play a significant role. When applied to the
corporate environment, a higher number of meetings of the board does not necessarily
lead to a higher level of financial profitability, as seen in the results of this study.
Furthermore, this entails higher expenses with no concomitant benefit. We believe it is
crucial to clearly distinguish between social and business undertakings, thereby assuring
board meetings do not develop prominently into social encounters. The number of
meetings must be adequate to treat those issues relating exclusively to the governance of
the companies. Under this perspective, we make no allowance for the fact that a higher
number of meetings than deemed absolutely necessary can carry certain intangible
benefits, such as a greater opportunity for intra company interaction to allow the board to
be fully informed on all aspects of operations and an increase in company exposure, as, for
example, in the media.
Due to the insignificance of the regression results, the remaining hypotheses could not be
accepted, nor rejected. Hence, no clear-cut answer could be established with regards to
the other characteristics of corporate boards in Spain: independence, occupation and
duality.
It is our belief that in a general sense our results could be biased due to the effects of the
deep and virulent economic crisis in Spain. When analyzing similar studies performed in
Spain by other authors before the crisis, for example, Fernandez et al. (1998), we can’t
deduce any clear cut consequences as these works used Tobin’s Q as financial variable
and the size and the outsiders of the board as the two corporative variables. As these found
a positive relation between them and in our study we found no significance for Tobin’s Q,
the results are not comparable.
This work has a twofold implication for future research:

1. first, on a general level and owing to the extensive literature in this area, forthcoming
studies should focus on the researched objective – to be accomplished by fine-tuning
previously analyzed parameters; and
2. second, specifically, via an increase in the time horizon – thereby expanding the
analysis of the characteristics of the board and firm performance in Spain.

VOL. 14 NO. 4 2014 CORPORATE GOVERNANCE PAGE 497

 Notes
1. Studies focused on financial and banking analysis have been excluded from the review and in our
sample due to the difference in accounting methodology and the exclusion of such by previous
authors (De Andres et al., 2005; Guest, 2009).

2. Notice that we could draw up the hypotheses using all the authors that appear in Table 1, but we
think it is more graphic and clear for the reader to present both Tables 1 and 2. In Table 1, we have
compiled all the characteristics of the studies: country, number of firms in the study, results (signs)
for the hypotheses, type of statistical analysis, theories used, listed/unlisted complete sample and
type of financial measurement performance. In Table 2, we have summarized results for the signs
of the hypotheses of Table 1.

3. The National Securities Market Commission (CNMV; www.cnmv.es/portal/quees/Funciones/

Funciones.aspx?lang⫽es is the body responsible for the overseeing and the inspection of the
securities markets of Spain and of those who are involved in them. The principal stock market in
Spain is the Madrid Stock Exchange (www.cnmv.es/portal/quees/Funciones/
Funciones.aspx?lang⫽es), founded in 1831 to 2010, with a capitalization of market Volume of
€1,071,633 and with 3,355 listed companies in all segments of the Spanish Stock Exchange.

4. SABI is a database containing the general and financial information of ⬎ 800,000 Spanish
companies. This information is obtained from different official sources, mercantile registries,
business press [. . .] and is periodically updated.
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5. AMADEUS is a database containing financial information on 18 million public and private European
companies. Each report includes a five-year data of every company’s profit and loss, balance
sheets, ratios and forecasts. This is a useful research tool for macro and microeconomic sectorial
studies.

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About the authors

Mercedes Rodriguez-Fernandez is a full-time Professor. He has a Phd from the University
of Malaga, where he was an Associate Professor from 1993 to 2001. He got tenure from
2001. His areas of research interest are corporate governance, work organization and

PAGE 502 CORPORATE GOVERNANCE VOL. 14 NO. 4 2014

 human resources, tourism and sports management. He is also a Visiting Professor at the
University of Ottawa, the University of Cincinnati, Saint Paul University and Carleton
University. Mercedes Rodriguez-Fernandez is the corresponding author and can be
contacted at: mmrodriguez@uma.es
Sonia Fernandez-Alonso is an Associate Professor at the University of Malaga And an
Industrial Organization Engineer at Repsol company. He has a master’s degree in
Cooperation and Development from the University of Malaga. He is also a Private
Consultant, and he is a Manager of a non-profit organization.

José Rodriguez-Rodriguez is the Head of the Department Economy and Business

Administration at the University of Malaga. His areas of research interest are corporate
governance and human resources management.
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