This paper investigates the relationship between board characteristics and corporate performance of firms in Palestine. The degree to which the board would be effective in performing its duties and tasks depends on several factors, which may be made up of particular board characteristics. This research achieved this objective by examining the impact of board duality, board size, board multiple directorship, board diversity, board skills on the level of corporate performance. The rationale for the relationship between each characteristic and firm performance is as follows. The Board duality is a leadership structure that combine the position of board chair and CEO. Board duality can prevent board’s ability to keep track of management and weaken board monitoring effectiveness. However, when the board of director implement both roles this may improve the firm’s performance, as internal and external ambiguity concerning the responsibility for firm objectives and processes may be removed. Large board size increases cost, as the coordination, communication, and efficient and effective decision making is costlier and harder, while small board size do not monitor managers effectively and can be directed by CEO. Multiple directorships may be an indicator for high director quality. However, multiple directors become too busy to monitor management adequately, and as a consequence this leads to higher agency costs. The presence of female on board leads to gender diversity. Largely, diversity is considered to enhance organizational value and performance as it provides new perspectives and insights. Finally, higher degree of educational credential like PhD will represent a strategic resource for the firm.
For our empirical work, cross sectional data are used since board characteristics little vary from year to year. The scope of this research is limited to Palestinian listed firms. The sample is composed of all the 47 companies listed in the PSE for the year 2012 where the entire data needed is publically and fully available for this year. The data for this study was secondary data manually collected from the audited annual reports of listed firms in Palestine Stock Exchange. OLS estimation is used and all coefficients are Robust using Newey-West method.
The results indicate that corporate performance of Palestinian listed firms is insensitive to board size and board skills. However, a highly significant positive relationship between board duality and firm performance is found consistent with the stewardship theory that explain the fact that when the chairman is the same person as the CEO decisions are executed faster, the ambiguity between the processes and the objectives of the firm is reduced and performance is enhanced. Our results also revealed a positive and highly significant relationship between percentage of female on board and performance. Though Palestinian firms have a high percentage of board interlocking, multiple directorship negatively but only weakly affected firm performance.