THE ACTIVE BOARD-OF-DIRECTORS AND PERFORMANCE OF THE LARGE PUBLICLY TRADED CORPORATION

Observation and reasonable assumptions lead the authors to the working hypothesis that a professional board-a board that is active and indep endent of management-should be associated with higher returns to inves tors. The authors test their hypothesis through an economic analysis o f potential returns to investors defined as ''economic profit''-operat ing earnings in excess of the costs of capital-and the authors' judgme nt as to the presence or absence of a professional board in a sample o f 154 large publicly traded domestic corporations. The data analysis f rom 1991-1995 demonstrates that there have been significant increases in ''economic profit'' where a professional board was present. Althoug h the results do not prove causation, corporations with active and ind ependent boards appear to have performed much better in the 1990s than those with passive, non-independent boards.