Exploring the Next Level of Boardroom Independence: Are Boards and Committees Driving Firm Performance or Risk in Western Europe?

This research responds to recent calls to explore the independence conditions under which boards’ leadership becomes economically meaningful for performance and risk in continental European governance systems. Using an unbalanced panel dataset of 223 non-financial publicly listed companies from Western Europe over 10 years between 2015 and 2024, this research examines how boards and their committee independence influence return on assets and return on equity, return volatility, indebtedness and liquidity volatility. Econometric methods include OLS regressions, industry fixed effects, linear and nonlinear models, including alternative specifications. The results highlight a U-shaped relationship between board and audit committee independence and operational efficiency, consistent with the critical mass interpretation. Board, audit and nomination committee independence reduce return volatility, reflected in a linear relationship. Audit committee independence is likely to reduce indebtedness beyond a balanced level, while the relationship of nomination committee independence with debt level is linear and negative across specifications. All governance mechanisms related to independence exhibit nonlinear relationships with liquidity volatility, with an immediate negative effect, while excessive independence oversight reduces their marginal effect. The findings suggest the existence of an optimal level of board and committee independence that is economically meaningful, providing practical guidance for shaping board and committee composition, to enhance performance and control risk.