Board independence and firm performance: a contingency model based on shareholders' proximity to management

Board independence is considered as a key corporate governance mechanism to help preserve the necessary checks and balances between the board and executive management. Despite all the value placed on the independent director by financial market participants and regulators, empirical evidence on the relation between board independence and firm performance is largely inconclusive. This creates an excellent opportunity to revisit the underlying theoretical framework that supports the concept of board independence. We propose a contingency model that integrates both agency theory and stewardship theory. We hypothesise that the board independence–performance relationship is moderated by shareholders' proximity to the locus of management.