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There are a large number of the researches indicated positive sign of the independence impact as well as negative impact detections, but there is a gap in the detection of the sing and correspondingly the of the relation. In correspondence with literature about an optimal board structure current study analyzes various features of independent directors and its coordination with exogenous factors and ownership structure, board of directors size and the probability of winning coalitions formation against independent directors and comes to the conclusion of the existence of significant reverse U-shape relation between board independence and corporate performance on developed markets. As for emerging the relation is affected by market specific factors as high ownership concentration and owners involvement into the decision-making process. The study also indicates the endogeneity of independent directors share on developed markets. The research is based on the sample of emerging countries including Russia, Brazil and South Africa and European developed countries (France, Italy, Spain and Portugal) during 10 years from 2005 to 2014.

В соответствии с литературой об оптимальной структуре совета текущее исследование анализирует различные функции независимых директоров и координацию с экзогенными факторами и структурой собственности, совета размера директоров и вероятность выигрыша формирования коалиции против независимых директоров и приходит к выводу о существовании значительная обратная U-форма отношение между правлением. Исследование также показывает эндогенность доли независимых директоров на развитых рынках. Исследование основано на выборке из развивающихся стран, включая Россию, Бразилии и Южной Африки и развитых стран Европы (Франции, Италии, Испании и Португалии) в течение 10 лет с 2005 по 2014 год. Высокая концентрация собственности и участия собственников в процессе принятия решений оказывают особое влияние на развивающихся рынках.



The question about effect of different financial architecture elements on corporate performance was states long time ago but there is still no simple rule what board structure has to be for a specific company. There are a large number of dimensions of the board structure: size of the board, independence, number of busy directors or insiders, gender and age diversity. Modern behavioral and intellectual capital theories also consider characteristics as director's educational and professional background, confidence level and other biases as a risk-taking.

The idea if independent directors in the board was developed in frame of Berle's theory (Berle, 1930) to compensate the lack of shareholder's control of public companies after an change of the control function to professional managers. A disinterested director that has to monitor management seemed to be a solution. However, the “independent director” theory has some limitations to be realized in ideal way. First of all, in case of blockholder an independent director should protect the interests of minority shareholders. Despite this a blockholder decide who will be a director. The conflict of interests leads to the acceleration of “gray” directors problem. Secondly, the requirement of board independence did not prevent financial crisis in 2008 that is raised question about monitoring effectiveness.

There are a large number of the researches indicated positive sign of the independence impact as well as negative impact detections. However, there is no empirical study that states the conclusion about the shape of the relation. In correspondence with theoretical literature about an optimal board structure current study analyzes various features of independent directors and its coordination with exogenous factors and ownership structure, board of directors size and the probability of winning coalitions formation against independent directors. The question also reflects the issue of different features of developed and emerging markets and the relation's form response on them.

The goal of the research is to examine form of the relation between the portion of independent directors and corporate performance and factors that affect the relation.

This research is concentrated on board independence level and the main question is - is the relation between a corporate performance and a portion of independent directors significant and non-linear?

Moreover, this paper is trying to answer on questions about factors that affect the relation between independence and performance and possible existence of reverse causality.

According to the definitions that are used in current research, the SEC rules state that an independent director is a director who has no any relations or material awards from a company except sitting fees. In other words an independent director is a person who will be act in the interest of shareholders since of their independence of management's interests. Another question is a conflict between major and minority shareholders. As

In 2002 after the series of high-profile scandals the Sarbane-Oxley act was accepted. The SOX act applies crucial constrains on the corporate governance and it is focused the most on the reduction of agency problems between managers of a company and its shareholders and between major and minority shareholders also. As the most efficient measure SOX emphasize independent members presence in a board of directors and its committees.

In correspondence with the goal of the research the following purposes were stated:

· Examine the conclusion about the relation between board independence and corporate performance on emerging and developed markets;

· Highlight the elements of the positive relation in terms of agency, resource dependence, behavioral and intellectual capital theories;

· Examine the Corporate Governance reform and SOX act impact on the relation

· Find out the factors of the difference between the results on emerging and developed markets;

· Identify sources of the negative effect of board independence on corporate performance;

· Analyze existence of non-linear relation since of the contradictive drivers;

· Examine literature of the question of the endogeneity of board structure and board independence;

· Develop the research methodology on the basis of the existing literature;

· State the hypotheses of the research in correspondence with research question, analyzed literature and highlighted gaps and limitations of the previous researches;

· Identify markets for the inclusion into the research data sample to prove stated hypotheses;

· Provide empirical research using econometric data tools;

· Draw the conclusion and future research development.

The paper is organized as follows, first part provides a literature review and answer the question about existing opinion on the relation between independent directors and corporate performance and the factors that affect it, second part presents research methodology, hypotheses development and data sample description, third part of the paper contains empirical results of the research and their reconciliation with previous conclusions and theoretical frameworks, the last one part provides discussion of the results and conclusion with issues for the future research development.



Literature overview

A. The positive effect of independent directors

A lot of studies supported by agency and resource dependence theories provide a conclusion about a positive effect of independent directors on corporate performance. Crucial portion of recent studies indicated positive sign of the independence effect, board independence reduce the negative impact of oversized board of directors and non-optimal share of insiders ownership, encourage survivance of the companies in crisis periods (Liu et al. 2015; Girбldez and Hurtado, 2014; Essen et al., 2013).

Speaking about corporate efficiency and performance improvement several types of corporate conflicts should be considered. Firstly, an agency conflict between employed management and company's owners. Shareholders are interested in strong current performance in terms of equity price rising and dividend cash flow and future perspectives of the company. At the same time a management is tend to improve the working conditions instead of overall performance (Shleifer and Vishny, 1997). In other words without external motivation management has no incentives to develop business in the interests of shareholder (Fereira & Matos, 2008; Liu et al., 2015). The solution in terms of various KPIs schemes bursts out in case of the lack of the monitoring. Incentives schemes are the responsibility of the board of directors and flooding the board structure with insiders leads to shirking and automatic respect of all chosen performance indicators that means nonraising or drop of the effectiveness. Another source of performance fall is non-optimal nominating policy that protect management against dismissal (Golden parachute scandals) and reduce efficiency incentives, higher than optimal salary costs that reduce net income of the firm and shareholders gain (Shivdasani & Yermack, 1999). Employment of disinterested directors as purveyors of efficient incentives policy and monitors of KPI goals achievement positively affect company performance (Fereira & Matos, 2008; Liu et al., 2015; Min, 2013). Finally, the earnings management question is raised, while board and audit committee independence should reduce the possibility of any illegal schemes and protect shareholders' wealth (Klein, 2002).

Secondly, the problem of ownership concentration or major verses minority shareholders conflict should be considered (La Porta, 1999). According to legislation all crucial decisions about a company have to be approved by its shareholders. In most cases the simple majority is the decision rule. Since the stakes are not equal the voting power is also different. The system works great when all shareholders are interested in good company performance. However, in case of major owner opportunism there is a variety of schemes to bring money out of the business and to care about own wealth with unhealthy selfishness. To prevent company value destruction and illegal actions a strong and objective monitor should filter company decisions. According to the studies about independent directors' influence, board independence may be considered as a substitute to a legal protection of minority shareholders (Fereira & Matos, 2008; Liu & Miletcov, 2015; La Porta, 1999, 2000). The issue is the mostly- spreading on emerging markets since poor legal protection of shareholders' rights. The prior research indicates that on emerging markets high ownership concentration and family-owned firms are a norm for corporate sector (Aguilera, 2016).

Investors rely on independent directors' effect as monitors and professional advisers. The research with event study of sudden independent director's deaths indicates abnormal negative returns on the stock (Nguyen and Nielsen, 2010). Agency conflict easing by effective monitoring of management, prevention of earnings management and illegal schemes protect investors and eliminate price discounts on the market for the company specific risks.

One more function of all outside directors is wider knowledge base and professional experience. Invite of director from the operational industry or from other segment provides a fresh view on the company's activity and strategy. First of all, independent director represent industry-wide knowledge to quickly react on exogenous factors and anticipate the negative consequences. Moreover, in most times outside directors bring an international expertise and networking linkages . Diversification of experience in the board of directors enables business to be less vulnerable to negative exogenous surprises (Daily et al., 2002; Jawahar and McLaughlin, 2001). Mixture of industry professionals as technology advisers, financial and legal support inside the board room with professional managers with strong strategy views enable the most efficient costs reduction in challenging times and aggressive market expansion with margins enhancement in case of growth opportunities.

Greater number of directors provides higher accumulation of human capital and networks. In terms of resource dependence theory it means more possibilities for a company development (Jawahar and McLaughlin, 2001; Dalton et al., 1999). Additional resources granted by networks support company operational cycle in crises and human capital provides innovations and competitive advantages.

However, there are a number of problems according mentioned positive effect explanations. First of all, the question about endogeneity of the board structure occurs. Researchers came up to the conclusion that poor performance in the previous year increases the number of independent directors (Hermalin & Weisbach, 1998, 2003). However, it is not arguing against positive effect of board independence on future performance. Another concerning issue that the CEO inclusion into selection process of independent directors then the monitoring of management function of the directors may be disturbed. The research on the CEO's appointment of outside directors in Fortune 500 companies present that inclusion of CEO into selection process leads to less board independence and increasing of “gray” directors employment (Shivdasani and Yermack, 1999). However, the results concerned about years before corporate governance reform (1985-1991) and may be affected by current legal requirements.

One more concern is connected with ownership structure of the firm and the reliability of “independence” of employed directors. Controlling shareholder that is interested to have backed board of director can appoint only a formally independent director that will be controlled by him. The issue is non-independent independent directors or “gray” directors in the board room (Bebchuk & Hamdani, 2016; Dahya et al., 2008).

Nguyen and Nielsen (2010) analyzed the effect of independent director's sudden death on market stock returns to avoid the endogeneity issue. However, the negative event about company even in terms of board of directors may lead to the negative stock performance in 5 days (the authors consider +-5 day event window) according to the behavioral issues about investors' confidence and risk-taking. Moreover, the noted approach does not provide evidence on the effect on yearly or long-term corporate performance.

B. Corporate governance reform and the SOX act

In 2002 after the series of high-profile scandals the Sarbane-Oxley act was accepted. The SOX act applies crucial constrains on the corporate governance and it is focused the most on the reduction of agency problems between managers of a company and its shareholders and between major and minority shareholders also. As the most efficient measure SOX emphasize independent members' presence in a board of directors and fully independent audit committee.

Corporate governance mechanism is an essential part of the organization and significantly affect the company's performance so it has to be regulated. The question is especially topical for emerging markets. As was mentioned above developing markets are characterized by high level of ownership concentration and poor legal protection of minority shareholders' rights (Aguilera, 2016;La Porta, 1999, 2000). Minimum independent directors' share as a 50% of the board of directors implies independents as a decision-maker and prevent any tunneling schemes and minority discrimination. Other emerging markets' specificity is a substantial level of government ownership (Fan, 2011). State ownership provides lower efficiency according to the literature (La Porta, 1999, 2000; Kim et al., 2007, Lui et al., 2015). The duality of government's roles provides conflict of interests when the government as the major shareholder became acting as social responsible institution. Inefficient and value destruction projects realized in interests of population or according political incentives discriminate minorities and affect the performance (Lui et al., 2015).

But it returns us back to the issue of board structure endogeneity and independence of outside director in case of blockholder existence.

The SOX act became the basis for following corporate governance reforms in developed and years later in emerging countries. However, the modern national corporate governance codes state the minimum share of independent directors or the minimum number of independent members in correspondence with firm size. The last one version generates a problem of excess independence since does not account a whole board structure.

An optimal board size and structure is an essential question. Previously researchers tended to consider board of directors as the quality of corporate governance supported by the resource dependence theory (Daily et al., 2002; Jawahar and McLaughlin, 2001). According to last papers the board size refers to collective decision-making and too much complex board leads to coordination and cooperation problems (Stepanova & Balkina, 2013; Girбldez and Hurtado, 2014).

Moreover, regulation of the number of independent directors without limitations on the board size provoke CEO and other managers to scale up number of insiders of non-independent outside directors. In other words board size enhance the likelihood of coalition formation against efficient decisions (Raheja, 2005; Goodstein, 1994).

Coalitions include cumulative effect of independent directors ratio and board size, separating the effect of human factor to organize against an effective decision making and lobby management's or major shareholder's interests (Raheja, 2005, Dalton et al., 1999). In the literature coalitions' issue is most known according political parties voting and the most impactful party detection (Aksoy, 2010; Aleskerov et al., 2003) or as interaction of shareholders (Pombo, 2011). In most cases there is no one decision-maker in the state authorities to avoid situation interest unification of different parties turn several minorities into wining coalition and strong decision-making power. In addition, there may be coalitions with independent directors in a board that affect rationality in a decision-making and failures in a monitoring (Gabrielsson, van Ees & Huse, 2009). The probability of independent directors inclusion into rival coalition significantly correlate with directors' age and tenure in the board with the same insider members (Jiang, 2015).

However, there is a lack of relevant studies in corporate governance and no empirical evidence on the effect of non-independent coalitions formation on corporate performance.

C. Negative relation

Negative impact of independent board member is a result of a deviation of real director's behavioral from theoretically prescribed (Armstrong, Core & Guay, 2014; Minton, Taillard & Williamson, 2012).

First of all, outside directors offer only generic knowledge about industry and operational processes, while insiders are aware of firm-specific features (Liu et al., 2015; Rindova, 1999). Secondly, independent directors have no any irrational incentives to improve company performance (Ahern & Dittmar, 2012) in comparison with insiders and owners. The rationality assumption normally works in good and stable periods but may be detrimental in cases of minor operational problems inside a firm, which will lead to potential crises.

Thirdly, the most crucial issue is directors' busyness (Core et al., 1999; Fich & Shivdasani, 2006; Adams, Hermalin & Weishbach, 2010). After the SOX act and corporate governance reforms the demand on independent directors has rose rapidly, it provoked an increase in directors' salaries. Moving by rational incentives of wealth accumulation, directors start to participate at more than one board. On the one hand, it leads to a competition among outside directors by reputation. On the other hand, busyness of directors has an impact of lower attention to the particular company issues (Falato & Lel, 2013). In this study the busy director is a director who participates at more than three boards. Apparently, an available time for particular company of director with four or more companies to monitor and advisory is significantly fewer. Studies depict negative effect of busyness on a corporate performance (Fich & Shivdasani, 2006; Adams, Hermalin & Weishbach, 2010) and an adverse impact of independent directors on operational performance (Bhagat & Black, 2001)

However, there was no study that questioned about the factor of negative relation as a result of too high board independence with the lack of firm-specific knowledge in the mail decision-maker - board of directors.

D. Non-linear relation idea

Taking into account all controversial effects, researchers record that there should be an optimal corporate governance structure of a company in face of internal and external environment (Rosenstein & Wyatt, 1990; Liu et al., 2015). Some authors assume an existence of a nonlinear relation of independent directors' characteristics. The explanation lies in the area of multiple directorship. An examination of board of directors characteristics in the corporate performance of Spanish companies detected nonlinear effect of the number different boards of directors in which outside board members participate (Lуpez Iturriaga & Morrуs Rodrнguez, 2014; Falato, 2014).

Theoretical Background and Hypothesis Development

The literature depicts significant differences for business in developed and emerging countries. An issue concerns a legal environment, industry structure of the economics, prevailing ownership structure of the companies. According to that issue, hypotheses are distinguished on the basis of the economy development extent and a set of expectations applicable to all countries is also provided.

Developed markets

Characteristics of developed markets are relatively high level of legal shareholder rights protection, general requirements on corporate governance in terms of board independence and obligatory number of board committees.

Positive impact of independent directors lies in the sphere of agency conflict between employed management team and company owners reduction. Outside directors have no any relations with firm except their work duties and salary, have no any relationships with its managers. Consequently, higher board and its committees independence provides better monitoring of managers and shareholder rights protection (Fereira & Matos, 2008; La Porta, 2000; Kim et al., 2007). Wide professional expertise of independent directors and accumulated networks enables to realize competences in form of management advisers (Nguyen & Nielsen, 2010). However, performance improvement measure forces more companies want to hire outside directors/ Firms tend to increase director's salaries to be an attractive employer and aspiration of possible independent director to earn more by participating in more than one board leads higher busyness (Adams et al., 2010). Another adverse force is irrational behavior of independent directors (Ahern & Dittmar, 2012; Armstrong et al., 2014). A dereliction of duties destroys all positive impact implied. The non-linear effect of multiple directorships of outside directors was stand by Lopez Iturriada & Morros Rodrigues (2014) for the sample of Spanish forms. According to this it comes to hypothesis of non-linear relation between board independence and corporate performance.

Hypothesis 1.1: Reverse U-shape effect of independent directors share on performance on developed markets

On emerging markets there is a poor legal protection of shareholder rights and weak transparency of companies, thus corporate performance is more sensitive to independent directors presence in a board.

According to the studies about independent directors' influence, board independence may be considered as a substitute to a legal protection of minority shareholders (Fereira & Matos, 2008; Liu & Miletcov, 2015; La Porta, 1999, 2000). Emerging markets are characterized by low firm transparency, high possibilities for tunneling as a result of poor legal protection. High information asymmetry implies greater risk bearing by investors and shift in required return correspondingly. Therefore, market assessment of a company is weak. Every independent director added is associated with better firm transparency and minority rights protection then company performs better according to the market.

In case of developed markets it is possible to speak about optimal board structure with higher share of independent directors since poor legal protection of shareholder rights and undeveloped shock markets with high firm transparency.

First of all, independent director is aware of the competitors' activities to solve industry-wide problems and ways to improve performance in crisis periods on different stages of the corporate life cycle. A broad-based knowledge allows to react quickly on force majeure consequences or anticipate the problem before it occurs based on tried-and-tested skills. Moreover, an international expertise by independent director implies cross flow of foreign performance improvement technologies. Secondly, accumulated networking activities make capable more efficient top management recruiting process supported by previous personal communication obtained from the interaction in the field of directorship in other companies. Other resources to improve company's performance include financial support by better borrowing conditions and less interest rates or funding of new value-creating projects by successful SPO procedures.

Hypothesis 1.2: Positive effect of independent directors on corporate performance on the emerging markets

Other hypotheses

Following hypotheses fit for developed and emerging markets because of their connection with firm and outside directors' characteristics more than with legal and economic environment in terms of the direction of relationship.

According tomajor shareholder's opportunism increases with his stake in the company's equity. The conflict between major stockholder and minorities is escalated with major's voting power increase (La Porta, 1999, 2000; Liu & Miletcov, 2015). Reaching the 50% level the block holder may take most decisions without other shareholder's support. It brings owner to the idea of self-benefits by weak voting power investors discrimination through tunneling schemes or other ways. Research about coinfluence indicates independent directors presence as secures of minority shareholder's rights (Fereira & Matos, 2008; Liu & Miletcov, 2015; La Porta, 1999, 2000). As for emerging countries, high ownership concentration is traditional (Aguilera, 2016). Major owners of a company may use corporate funds for their own interests and realize inefficient investment projects under corporate investment programs. Moreover, tunneling is more probable in firms with high ownership concentration. In other words, large disparity in shares in condition with poor legal control provides great variance in possibility to make corporate decisions and income receipt (La Porta, 1999, 2000; Kim et al., 2007, Lui et al., 2015).

Hypothesis 2: Ownership concentration reduces the positive effect of board independence on corporate performance on developed and emerging markets

Government ownership is associated with lower efficiency (La Porta, 1999, 2000; Kim et al., 2007, Lui et al., 2015) and independent directors as monitors and purveyors of advice in interest of all shareholders become more significant to corporate performance. Conflict of interests originated by the duality of government's roles provide better market perception since strong incentives to support the company in state ownership in challenging times, in the meantime social responsibility, politics and marketing affect on the goals that authorities state for the company. Pulling the company to provide socially useful projects with value destruction the government taking the place of social responsible institutions but forget about its responsibilities as a shareholder and discriminate minorities. A reason is that government's prime interest is social benefits instead of corporate efficiency and value creation (Lui et al., 2015).

Hypothesis 3: Government ownership reduces the positive effect of board independence on corporate performance on developed and emerging markets

Independence of a board of directors is determined by corporate performance and ownership structure (Liu & Miletcov, 2015; La Porta, 1999, 2000; Kim et al., 2007). On the one hand, good performed firms are tended to employ more independent directors to send signaling its shareholders about company transparency and efficiency (Hermalin and Weisbach, 1998, 2003). On the other hand, independent directors may be selected or nominated by the CEO that leads to change of independent directors on “gray” board members (Shivdasani and Yermack, 1999).

Another source of endogeneity is high ownership concentration and the issue of major shareholders interest in the independence directors presence (Bebchuk & Hamdani, 2016; Dahya et al., 2008). The researcher argue that current regimes to hire or retention of independent director depends on controlling shareholder's decision and account his interests (Bebchuk & Handani, 2016). The situation may enhance minorities discrimination since the union of independent directors and major shareholder (La Porta, 1999, 2000). The situation hardly may be turned into anther way since independent director's interests to be hired and to have appropriate salary for his activities.

Hypothesis 4: The ratio of independent directors is endogenous

Coalitions formation affects independent directors ratio impact on corporate performance due to lobbyism of management's or major shareholder's interests (Raheja, 2005, Dalton et al., 1999).

Non-independent board members may be instigated by insiders since of the lack of benchmark expertise and reliance on the management skills. Management since of greater awareness of company's activities and operations may be opposed to any costs reduction and their compensation size, support it with the necessity of the quality of product (or service) preservation. Weakening of implemented KPI incentives plans by explaining the impossibility of the KPI level respect.

Hypothesis 5: The number of possible winning coalitions against independent directors reduces positive impact of board independence on corporate performance.



Research methodology

For empirical analysis the following steps are realized: At the first stage abnormal observations with outlier values of considered variables were dropped out of the sample. At the second stage a regression analysis of the data with pooled OLS regression and panel appropriate regressions with fixed and random effects. After the specification tests, the most appropriate model will be taken as a final. The regressions are separately run for the sample of developed and emerging countries. Industry and time effects on the performance is taken into account by dummy variables.

The endogeneity testing will be provided by 2sls procedure with the instrument variables for independent directors' ratio. More detailed information about the endogeneity describes lower in the specific paragraph.

The model was developed with reference of stated hypotheses and ways in the previous studies of effects accounting.

The research is focused on the relation of independent directors and corporate performance and factors that affect an independence impact. Since the variety of contradiction factors of independence and conclusions about the sign of the impact non-linear relation is considered. The effect of independent directors presented by the share in the board of directors and an independent's share that is raised to the second power. The number of directors in board may have an optimal point too, thus the raising to the second power was used again (Paper Spain).

To prove the significance of different exogenous factors on the relation the multiplication of the factor characteristic and independence variable was used (Choi, 2007).

In the perspectives of research purposes the research model was constructed:



A. Model specification

(1)

Performance measures
TQ	Tobin's Q (M/B ratio)
ROA	Return on Assets
Independent variables
Ind	Share of independent directors
Indn	An absolute number of independent directors
Board	Board size
Coalitions	Natural logarithm of the number of winning coalitions against independent directors
Gov	Share of government ownership
C3	Ownership concentration (share of 3 (5) major shareholders)
Controls
Market	Dummy variable that is equal 1, if company refers to emerging market, and 0, otherwise
Country	Country of domicile
TA	Natural logarithm of total assets
D/E	Leverage ratio
iGrowth	Dummy variable that equals 1, if the revenue growth is higher 5%, and 0 vice versa
Industry	Industry sector of a company (according to the SIC)

Dependent variables

Dependent variables are represented by market and accounting performance measures:

· Tobin's Q (TQ) - measure of long-term corporate efficiency and its market interpretation by investors. The variable is calculates as the ratio of market capitalization at the period t to book value of total shareholder's equity at the same period.

coordination property independent director

(2)



· Return on assets (ROA) - measure of the company revenue that is produced by the assets as the assets profitability ratio. The return is calculated as the revenue in period t in relevance with book value of total assets in period t.

(3)

Independent variables

· Independent directors ratio (Ind) is calculated as the number of independent directors relative total number of board members. It is usually considered as the board independence characteristics;

· Number of independent directors (Indn) is an absolute value that is used to check

· Board size (Board) - an absolute value of the number of directors in the board that addresses to the decision-making theory and quality of the control;

· Number of wining coalitions against independent directors (Coalitions) describes the number of non-independent directors' coalitions with the assumption of possible union against independent board members between insiders or other directors. The wining coalition is accepted as its members number overlap 50% of the board size. Assuming the equal voting power of each member in the board of directors, the final formula will be (Laruelle & Valenciano, 2001):

, (4)

Where Board is a number of directors in the board; Indn is the number of independent directors in the board. The formula accounts all fractal values as rounded up.

· Share of government ownership (Gov) is represented as a percentage of shares owned by state representatives in total common shares of a company, it does not account ownership of preferred stock and is focused on voting power and influence on the decision making process;

· Stake of three major stockholders (C3) indicates an ownership concentration and vulnerability of minority shareholders;

· Controls are aimed to smooth differences within firms concerning their size as logarithm of total assets, financial stability, growth opportunities as dummy variables that distinguish high revenue growth firms out of the whole sample and main market characteristics as an industry of main business activities.

B. Endogeneity

The issue if endogeneity of a board structure arise permanently in related literature. According the board independence a ownership structure (Bebchuk & Hamdani, 2016; Dahya et al., 2008) and previous performance (Hermalin and Weisbach, 1998, 2003) and CEO inclusion in outside directors selection and nomination policy (Shivdasani and Yermack, 1999) are analyzed as impactful factors.

The analysis will be provided by 2sls method. In current research the stake of three major shareholders (CS3) and state ownership percent (G) were considered as ownership concentration measures, board size (Board) as the characteristic of internal board structure and past performance by lagged return on equity (l.ROE) was used as instruments for independent directors ratio.

gthen incentives to accumulate own benefits by participation in more corporate boards.

C. Data sample description

In corresponding with the research objectives firms from the emerging and developed countries were considered. As a basic point were chosen Russian public firms, after this for the sample of emerging markets other BRICS markets were considered. India and China were not used in current research since complicated cross-holding structures from the government side, so it could not be clearly stated who is the block holder and how reliable board data is. The Brazil and South Africa were added as countries with a good reporting and similar to the Russian market conditions.

As for corresponding developed markets were chosen Germany, France, Italy, Portugal and Spain since assimilated legal environment, disclosure level and comparable decision making process by investors. The Germany was excluded on the second round of screening process since the lack of board structure data.

All data were collected from Capital IQ, Bloomberg databases and were added by hand collection. For the first round of screening process all public companies with from chosen countries (Russia, Brazil and South Africa as emerging countries and France, Italy, Spain and Portugal as developed markets) were obtained from Capital IQ database. The total number contained 1 509 firms within 10 years from 2005 to 2014. On the second round the firms without any data about their board structure in Bloomberg database were dropped out of the sample and ownership structure data were obtained from Capital IQ database. All financials and market data were derived from Bloomberg terminal.

The final data sample contains three emerging countries (Brazil, Russia, South Africa - 269 firms and 2 600 firm-year observations) and four developed markets (France, Italy, Portugal, Spain - 206 firms and 2 602 firm-year observations).

The sample is unbalanced by firm's primary industries. Consumer Staples and Discretionary with industrials and materials sectors make up above 50% of the whole data sample.

The most frequent industry on the Europe sample is industrials (28%) and consumer discretionary (24%), in other words more than a half of the companies presented by two industries. Sample of the emerging counties is more balanced, two the most frequent industries materials (21%) and industrials (19%) contain only 40%. The industry structure of the economies is presented on picture 1-2.

Picture 1. Developed (left pie chart) and Emerging markets (Right pie chart) sample industry structure

D. Robustness check

To analyze the robustness of the obtained empirical results, the study consider the sample of market and accounting performance measures as dependent variables: Tobin's Q as a characteristic of investors' perception of independent director's value and ROA in the capacity of accounting dependent measures variable. Researchers consider different performance measures as different stimulus for management and board of directors since shareholders may be less sensitive to operational performance than for stock price returns (Post & Byron, 2015; DeAngelo, 1988). Accounting returns are represented by company profitability in most studies. Return on assets (ROA) considered in current paper indicates how successful a firm utilizes its assets and investments to generate earnings and measures past short-term operational performance (Combs et al., 2005; Gentry & Shen, 2010). According to market performance characteristics it is connected with stock's dynamics on the market and refers to long-term company perspectives by investors' perception and expectations of its value (Barberis & Thaler, 2003).



Empirical results

The goal of the current research is to detect the form of the relation between board independence and factors that affect this form and the sign of the relation. Empirical results indicate significant differences of the independent directors effect on company performance on developed and emerging markets.

The study was realized by STATA statistical package. At the first stage of the empirical analysis the inadequate observations and outliers were dropped out of the sample. The most appropriate model specification for the sample of emerging countries is panel regression with random effects (p-val - 51%) and as for developed the Hausman test indicates the reject of hypothesis about indifference of fixed effects model and random effects only on the 91% confidence level. Since the specific data collection that has now any strong frames to the observed companies and the sample is quite randomly derived the random effects model was chosen. Statistical tests did not detect multicollinearity in the independent variables and autocorrelation of model's residuals. Tests detect heteroskedasticity in the data and following empirical analysis is provided with robust standard errors.

A. Data sample characteristics

At the first stage of the empirical analysis the inadequate observations and outliers were dropped out of the sample. The relevant graphs are allocated in the Appendix I.

According to the data sample the outliers was represented by Tobin's Q higher than 4.48 and ROA higher than 25%. Other abnormal observations were analyzed by control variables (logarithm of total assets, Debt to Equity ratio and one year revenue growth) with excluding only inadequate values. Descriptive statistics are presented in the Table I.

As for independent variables values range, it worthy to note that there are companies in the sample without any independent directors and firms with fully independent Board.

Table I

Descriptive statistics

Variable name	Observations	Mean	Std. Dev.	Min	Max
tq	3 138	1.58	1.04	0.00	4.48
roa	3 138	0.06	0.04	0.00	0.25
ta	3 138	8.32	1.57	3.92	12.92
d_e	3 138	0.82	0.93	0.00	3.07
Growth	2 860	0.58	0.49	0.00	0.35
cs3	1 793	0.53	0.25	0.04	0.94
g	1 545	0.06	0.16	0.00	0.88
indn	1 795	5.37	2.74	0.00	16.00
board	1 955	11.33	3.39	3.00	24.00
meeting	1 537	10.26	8.74	2.00	104.00
ind	1 788	0.46	0.21	0.00	1.00
ind2	1 788	0.26	0.20	0.00	1.00
CoalitionsS3	1 731	0.19	0.13	0.00	0.72
IndG	1 532	0.02	0.05	0.00	0.38
Coalitions	1 788	0.56	0.63	0.00	2.74

B. Testing the board independent effect and impactful factors

In the regression analysis all independent variables were considered at the first stage (see Tables II and III, models (1) and (4)). The main idea of the following analysis is to find model specification that is the most fitted to the sample (see Tables II and III, models (2-3) and (5-6)).

The results of the regression analysis detect non-linear effect of board independence presented as the ratio of independent directors in the Board on corporate performance on developed markets. The coefficients for variables Ind and Ind2 are significant on the 5% confidence level and their signs indicate reverse U-shape relation, so the Hypothesis 1.1 is not rejected on 90% confidence interval. The result is sustainable within two performance measures Tobin's Q and ROA (see Tables II and III).

Indicated form of the relation (see Picture 2) between board independence and corporate performance corresponds to the studies about optimal board structure (Rosenstein & Wyatt, 1990; Liu et al., 2015). For European developed sample the optimal share of independent directors contains 53.9% for Tobin's Q and 47.3% for ROA equation. Obtained optimal points are in line with agency and major vs minorities conflicts reduction (Liu et al., 2015; La Porta, 1999, 2000) and maximize the operational efficiency and market valuation of the company. However, the lack of firm-specific knowledge reflected with lower optimal board independence in terms of operational performance (ROA). The outcome is supported by the researches of negative characteristics of independent board members (Liu et al., 2015; Rindova, 1999) and studies about the lack of irrational incentives to support company performance with additional actions above prescribed responsibilities (Ahern & Dittmar, 2012).

As for emerging countries sample Hypothesis 1.2 about positive effect of the share of independent directors on emerging markets rejected on 80% confidence level. The effect of independent directors share on Tobin's Q (see Tables II, model (4)) failed to respect the significance requirement. The finding is in line with researches outcomes of the results of studies focused on the endogeneity of the board independence ration (Bebchuk & Hamdani, 2016; Dahya et al., 2008). At the same time, the signs of coefficients referred to reverse U-shape relation as on the sample of the European developed countries.

However, the effect on the ROA is positive and significant on 90% confidence level without accounting of state ownership impact (see Tables III, model (5-6)). According to the resource dependence theory wide industry and international expertise bring a fresh view on operational performance in frame of market expansion and costs cutting (Jawahar and McLaughlin, 2001; Dalton et al., 1999).

Other hypotheses were not considered in connection with country's economic development but the results indicate crucial differences between two data samples.

Speaking about the factors that affect the relation, the Hypothesis 2 that assumed negative effect of ownership concentration on independent directors impact does not reject on 99% confidence level for the sample of developed countries that is in line with previous literature (La Porta 1999, 2000; Kim et al., 2007). Ownership concentration makes the need of independent directors higher by accelerating the possibilities of major shareholder's opportunism. The effect of ownership concentration growth is shown on the Picture 2. The main line indicates the Tobin's Q - Independence relation with the medial share of three major owners while dotted line represents the relation with the major shareholder's stake on the top 75% percent level (73% by three holders).

Interesting that in emerging countries the effect of joint influence of ownership concentration and share of independent directors is positive and significant and the Hypothesis 2 is rejected. In other words the crucial presence of 3 major shareholders enhance the positive effect of independent directors. Such surprising result may be explained by emerging markets environment in terms of inherent high rates of ownership concentration that leads to effective control from the major owner's side (Aguilera, 2016; La Porta, 1999, 2000). Despite this, results of ownership concentration impact failed with ROA as the dependent variable and does not respect the significance level. An explanation lies in sphere of professional competencies of the owner as company manager. This result is in line with previous outcome about significant independent director's impact on ROA measure.



Regression analysis of board independence effect on Tobin's Q

*, ** and *** denote significance at the 10%, 5% and 1% level, respectively.

	Developed		Emerging
	(1)		(2)		(3)	(4)		(5)		(6)
ind	1.985		1.733		1.883	0.090		-		-
	[2.340]	**	[2.310]	**	[2.500]	[0.050]
ind2	-1.397		-1.263		-1.471	0.043		-		-
	[-2.050]	**	[-2.010]	**	[-2.210]	[0.020]
CoalitionsS3	-1.575		-1.504		-1.191	1.893		2.015		1.274
	[-2.730]	***	[-2.620]	***	[-1.970]	[1.800]	**	[3.090]	***	[2.040]	**
IndG	0.602		-		-	-5.109		-5.117		-4.646
	[0.210]					[-6.190]	***	[-6.260]	***	[-4.310]	***
Coalitions	0.016		-		-	0.428		0.419		0.266
	[0.270]					[1.910]	**	[2.750]	***	[1.730]	**
d_e	-0.290		-0.299		-0.226	0.359		0.360		0.399
	[-3.950]	***	[-4.030]	***	[-3.630]	[2.850]	***	[2.900]	***	[3.740]	***
ta	-0.048		-0.039		-0.066	-0.145		-0.144		-0.176
	[-0.680]		[-0.680]		[-1.170]	[-2.240]	**	[-2.300]	**	[-2.580]	**
Igrowth	0.129		0.124		0.110	0.363		0.366		0.488
	[2.340]	**	[2.440]	**	[1.760]	[2.840]	***	[3.450]	***	[3.510]	***
_cons	2.062		2.068		2.183	1.841		1.848		2.120
	[3.260]	***	[3.910]	***	[4.360]	[2.880]	***	[3.070]	***	[3.810]	***
Year effect	No		No		Yes	No		No		Yes
Industry effect	Yes		Yes		Yes	Yes		Yes		Yes
R2	20.80%		21.70%		22.10%	23.50%		23.40%		32.90%
P-val	0.000		0.000		0.000	0.000		0.000		0.000

A negative state ownership effect that was states in Hypothesis 3 for developed countries is not accepted on 60% confidence level. In frame of the current research it may be connected with impossibility to clearly account the percent of government ownership since cross-holding ownership structure with private companies.

On the sample of emerging countries the Hypothesis 3 does not rejected on 99% and 95% confidence level for dependent variables as Tobin's Q and ROA correspondingly. The state ownership has significant negative impact on corporate performance since government is interested in owning stakes in companies that represent industries forming country's security, so that it is able to take control of main corporate decisions. On the one hand, in the interest of sustainable corporate performance and other shareholders correspondingly, on the other hand, in social and political interests that assumes inefficient projects with negative net present value from the shareholders' pocket. Such opportunism leads to value destruction and low interest from the investors to state companies whereas it provides insufficient funding and accelerating government financial support (La Porta, 1999, 2000; Kim et al., 2007, Lui et al., 2015).

The statistical testing with 2sls model detects the endogeneity of independent directors share in the board in developed countries. The valid instruments are total board size as a number of all board members, ownership concentration as the summarized ...