Does board turnover enhance firm performance? A contingency approach

Calls for more regular board turnover have become more common among investors and the corporate governance community. However, board turnover may not be as beneficial as its proponents suggest because it can engender
both positive and negative effects on firm performance. Using a sample of U.S. firms from 2000 to 2013, we find that board turnover has a negative association with two accounting-based measures of future firm performance. Our results are robust using different time periods to measure future firm performances and after addressing for endogeneity. Our findings suggest that in general, disruption of group processes arising from board turnover limits the board’s effectiveness in advising and monitoring firms. However, we also find that the negative impact of board turnover on firm performance is attenuated by board diversity and corporate diversification. These findings suggest that when boards are better positioned to handle the impact of board turnover on firm performance when they already have the capacity and experience to cope with complex information-processing and decision-making.