A Process Model of Board Characteristics and Firm Financial Performance: A Meta‐Analytic Structural Equation Modeling Approach

ABSTRACT Research Question/Issue It has been over three decades since Zahra and Pearce's (1989) seminal work examined the influence of board characteristics on firm financial performance (FFP). However, several meta‐analyses and numerous empirical studies have yet to establish a systematic relationship between board characteristics and FFP. This study extends previous research by investigating how board characteristics influence FFP through examining intervening mechanisms. We theorize that the distal relationship between board characteristics and FFP is mediated by board roles and strategic risk taking. Using meta‐analytic data from 139 studies spanning 45,889 firms and applying meta‐analytical structural equation modeling, we test several models that help us establish this theorized relationship. Research Findings/Insights Our findings indicate that while some statistically significant correlations exist between board characteristics and FFP, the effect sizes are too small to suggest any meaningful relationships. Instead, our results reveal that the board's engagement in monitoring and resource provision roles, as well as higher levels of strategic risk taking, plays a mediating role in this distal relationship. Our findings differentiate the impact of board monitoring and resource provision roles on FFP, emphasizing that boards prioritizing the resource provision role over the monitoring role are more likely to foster strategic risk taking and enhance FFP, whereas boards focusing more on monitoring than the resource provision role may inadvertently constrain strategic risk taking and impede FFP. Theoretical/Academic Implications Our study helps reconcile the debate between agency and resource dependence researchers who have previously examined the relationship between board characteristics and FFP. Our study suggests that there is indeed a relationship between board characteristics and FFP, although it is distal. Future scholars interested in studying this relationship should consider the intervening mechanisms underlying this relationship.