Does board expertise impact firm performance? Evidence from an emerging economy

The study aims to investigate the relationship between board members' expertise in business, economics, or law and the financial performance of firms in an emerging economy. Based on a sample of 280 firm-years from listed banks spanning from 2016 to 2023, we employ OLS regression with multiple robustness tests to examine our research hypotheses. Grounded in resource dependency theory (RDT) and the resource-based view (RBV), the findings reveal a positive effect of board expertise, measured by the highest academic credentials (i.e., PhD) or professional qualifications, on firm performance. Moreover, board independence strengthens this positive relationship. These findings are robust to a battery of tests, including alternative measures of board expertise and addressing endogeneity issues using lead-lag and dynamic GMM models. The results highlight the importance of enhancing corporate governance by appointing more expert and independent directors. Implications extend to policymakers, nomination and remuneration committees, and shareholders in improving board selection strategies. By providing empirical evidence on the value of specialized knowledge in boardrooms, this study contributes to research on corporate governance in emerging economies like Bangladesh. Overall, the findings supporting RDT and RBV demonstrate that board expertise enhances decision-making, thereby improving firm performance.