Boardroom Communication and Firm Performance: The Roles of CEO Leadership and Board Monitoring

Abstract

This paper examines the moderating effects of CEO leadership and board monitoring on the relationship between frequency of board meetings and firm performance. Analytical results based on a sample collected from 212 publicly-listed companies in the Colombo Stock Exchange in Sri Lanka show that frequency of board meetings exerts a positive effect on firm performance. More importantly, consistent with the proposition of agency theory, CEO’s excessive leadership power shows a negative moderating effect while, out of our prediction, CEO duality reveals a positive moderating effect, supporting the stewardship perspective. Moreover, board ownership plays a positive moderating role. The research contributes corporate governance literature by identifying CEO leadership and board monitoring as critical moderating mechanisms and thus explicate the inconclusive relationship between board activities and firm performance. By examining the governance issues in an Asian developing economy, our study also provides a critical step toward deeper understanding of managerial contexts where the power dynamics between CEO and board of directors would be largely different from those in Western countries.