Board Capital Leverage in the Emerging Capital Market: Empirical Evidence from Russian Companies

The purpose of this study is to examine the concept of board capital, which represents the ability of a board to effectively monitor management and provide resources such as expertise, knowledge, access to external information etc. In particular, this study is aimed to investigate whether board capital has significant impact on firm’s future operating performance and its current market valuation. In addition, the moderating effect of CEO power on board capital-firm’s performance relationship is also tested. Board capital is a set of board characteristics which in turn make boards to be able to execute its functions effectively. Thus, in this study the authors use both common factor analysis and index approach in order to approximate board capital measure with use of individual board characteristics. Through 100 public firms operating in Russia during the period 2009-2017, the authors empirically test relationship between board capital and firm’s performance. The results show that board capital has significant positive impact on both measures of operating performance of a firm namely return on assets (ROA) and return on equity (ROE) as well as on measure of market valuation defined by Tobin’s Q. In addition, the authors find that presence of powerful CEO may reduce positive impact of board capital on operating performance.