Doubling independent directors and firm performance: evidence from Bangladesh

Purpose This paper aims to examine the impact of increased board independence on firms’ operating performance in light of corporate governance (CG) reform in Bangladesh, an emerging economy. Design/methodology/approach The study used a panel data set on 183 non-financial companies listed on the Dhaka Stock Exchange, Bangladesh, from 2007 to 2017. The system generalized method of moments estimation technique was used to control possible endogeneity issues in the governance–performance nexus. Findings The policy evaluation results using difference-in-difference estimation confirm that the regulatory reform encompassing doubling up the proportion of independent directors improves firm performance. It reveals that the negative significance of board independence in the pre-reform stage fades away after the code modification phase. Furthermore, the study reports that the regulatory change demonstrates noteworthy differences in the effects of internal governance parameters on performance for small- and large-sized firms. Practical implications The findings suggest that although the policy shift establishes the board’s resource provisioning role, the full-fledged monitoring contribution that improves firm performance has yet to be demonstrated. Originality/value This study extends scant literature on the nexus of CG reform and firm performance in a developing country. The findings underscore apprehensions regarding the efficacy of instituting agential viewpoints for every nation.