The Effect of Board Composition on Long-Term Firm Performance: NASDAQ versus NYSE

In response to multiple corporate scandals in the closing years of the 20th century, the SEC implemented board-independence requirements in 2003 for companies listed on NASDAQ and NYSE. According to the prior research on principal-agent theory and the effects of board composition on financial performance, increased monitoring and improved oversight mechanisms stemming from board independence enhance the long-term success of publicly traded companies. This study aims to determine whether the 2003 independent-board mandate affected the performance of U.S. companies traded on NASDAQ differently from those traded on NYSE. We expected the more stringent measures adopted for NYSE firms to have a greater effect on long-term firm performance than the less stringent measures adopted for NASDAQ firms. We conducted the study using a sample of 381 U.S. companies traded on NASDAQ and 857 U.S. companies traded on NYSE over the period from 1997 to 2012. We examined the information utilizing a difference-in-difference-in-difference research design and assessed company performance using Tobin’s Q. Our findings indicate that independent boards significantly improved the long-term financial performance of companies listed on NYSE but had no impact on companies traded on NASDAQ. Our contribution to the body of research is the discovery that the 2003 board-independence standards adopted by NASDAQ impacted long-term firm performance differently than those adopted by NYSE. Keywords: board composition, financial performance, firm performance, independent boards, NASDAQ, NYSE, Tobin’s Q