Board Characteristics and Firm Performance: Evidence from the Life Insurance Industry in Thailand

This study examines the relation between board characteristics and firm performance among life insurance companies in Thailand. Prior research suggests that boards of directors play a critical role in monitoring non-financial companies in Thailand. However, it is possible that board characteristics are not important in the life insurance industry due to the nature of business and the effect of government regulations, both of which limit managerial discretion. Empirical evidence indicates that board composition has a positive relation to overall profitability, as measured by return on assets, and a negative relation with the risk-taking behavior of life insurance firms. Board size does not have any relation with firm performance. The evidence suggests that outside directors can still be beneficial even for firms with limited managerial discretion. The results add insight on the relation between monitoring mechanisms and firm performance of life insurers in an emerging market. Corresponding Author: Piman Limpaphayom, Sasin Graduate Institute of Business Administration, Chulalongkorn University, Chula 12, Phyathai Road, Bangkok 10330, Thailand. Telephone: +66 (2) 218-4028. E-mail: [email protected] The authors thank Richard E. Kihlstrom, Kenneth A. Kim, Nandu J. Nagarajan and participants at the 2003 Asia-Pacific Risk and Insurance Association Meeting for useful comments and suggestions. Financial support from Sasin Graduate Institute of Business Administration of Chulalongkorn University is gratefully acknowledged. Board Characteristics and Firm Performance: Evidence from the Life Insurance Industry in Thailand ABSTRACT This study examines the relation between board characteristics and firm performance among life insurance companies in Thailand. Prior research suggests that boards of directors play a critical role in monitoring non-financial companies in Thailand. However, it is possible that board characteristics are not important in the life insurance industry due to the nature of business and the effect of government regulations, both of which limit managerial discretion. Empirical evidence indicates that board composition has a positive relation to overall profitability, as measured by return on assets, and a negative relation with the risk-taking behavior of life insurance firms. Board size does not have any relation with firm performance. The evidence suggests that outside directors can still be beneficial even for firms with limited managerial discretion. The results add insight on the relation between monitoring mechanisms and firm performance of life insurers in an emerging market.This study examines the relation between board characteristics and firm performance among life insurance companies in Thailand. Prior research suggests that boards of directors play a critical role in monitoring non-financial companies in Thailand. However, it is possible that board characteristics are not important in the life insurance industry due to the nature of business and the effect of government regulations, both of which limit managerial discretion. Empirical evidence indicates that board composition has a positive relation to overall profitability, as measured by return on assets, and a negative relation with the risk-taking behavior of life insurance firms. Board size does not have any relation with firm performance. The evidence suggests that outside directors can still be beneficial even for firms with limited managerial discretion. The results add insight on the relation between monitoring mechanisms and firm performance of life insurers in an emerging market.