FIRM PERFORMANCE AND BOARD COMMITTEE STRUCTURE

This article demonstrates a linkage between firm performance and board composition by examining the committee structure of boards and the di rectors' roles within these committees. Consistent with previous studi es, I find little association between firm performance and overall boa rd composition. However, by going into the inner workings of the board via board committee composition, I am able to find significant ties b etween firm performance and how boards are structured. First, a positi ve relation is found between the percentage of inside directors on fin ance and investment committees and accounting and stock market perform ance measures. Next, firms significantly increasing inside director re presentation on these two committees experience significantly higher c ontemporaneous stock returns and return on investments than firms decr easing the percentage of inside directors on these committees. These f indings are consistent with Fama and Jensen's assertion that inside di rectors provide valuable information to boards about the firms' long-t erm investment decisions.