What Matters Between the Boardroom Communication and Corporate Performance: Examining the Roles of CEO's Power and Board Monitoring

Abstract

This paper examines the moderating effects of Chief Executive Officer (CEO) leadership and board monitoring on the relationship between board activities and firm performance. Results based on a sample collected from publicly-listed companies in the Colombo Stock Exchange in Sri Lanka show that frequency of board meetings exerts a positive effect on firm performance. Consistent with the proposition of agency theory, CEO's excessive leadership power shows a negative moderating effect, however, out of our prediction, CEO duality reveals a positive moderating effect, supporting the stewardship perspective. Moreover, board ownership plays a positive moderating role. The study contributes to corporate governance literature by examining CEO leadership and board monitoring as critical moderating factors and thus explicate the inconclusive relationship between board activities and firm performance. In doing so, our study enhances the understanding of managerial contexts where the power dynamics between the CEO and board of directors in the Asian countries would be largely different from those in Western countries.