Abstract
This study aims to examine the relationship between the effectiveness of board of directors and firm performance. In accordance with agency theory, the effectiveness of the board of directors may act as predictors of the firm performance. To alleviate endogeneity concerns and establish the robustness of results, the authors used a dynamic approach. Based on panel data set drawn from Tunisian listed firms over the period 2011 - 2017 and dynamic Panel GMM Estimator, results show a U-shaped relationship between board size, board independence and firm performance. Thus, a threshold of 15% is found, indicating the minimum weight of independent board members. Also, results show that a higher firm performance is confirmed if the board size is composed by at least 6 members.
For a robustness check, this study measures a composite score of the effectiveness of board of directors to capture the aggregate impact of board's effectiveness on firm performance. The findings of regression analysis find a significant positive relationship between the board effectiveness score and firm performance. Indeed, there is a synergy between mechanisms that act together to enhance firm performance in the Tunisian context.