Najib H. S. Farhan

College of Business Administration,

Arab Open University,

KSA

najib720000@gmail.com

Board composition and firms’ profitability: Empirical evidence from pharmaceutical industry in India

Mosab I. Tabash

College of Business,

Al Ain University,

UAE

mosab.tabash@aau.ac.ae

Faozi A. Almaqtari

Department of Accounting,

Hodeidah University, Hodeidah, 

Yemen

Fouzi_gazim@yahoo.com

Ali T. Yahya

Department of Management, University of Science and Technology

Hodeidah, Yemen

ali.ust77@gmail.com

Abstract. The current study aims to assess the effect of board of directors’ composition on the profitability of Indian pharmaceutical companies. The analysis is based on 82 companies, analyzed over ten years, from 2008 to 2017. The least squares regression model is used for analysing the data. One accounting-based measure (return on assets, ROA) and one marketing-based measure (Tobin Q) are used as proxies for firms’ profitability. Leverage, firms’ size and age are used as control variables. The findings reveal that board of directors’ composition as measured by the percentage of independent board members negatively and significantly affects firm’s profitability measured by ROA. On the other hand, board of directors’ composition positively and significantly affects profitability measured by Tobin Q. Furthermore, firms’ size and age positively and significantly impact profitability. This topic is largely neglected by researchers of Indian origin at home and abroad. The present study provides an insight for pharmaceutical companies to consider a high level of professionalism of their board members. Greater board independence could bring more expertise, improving profitability. Accordingly, the current research has implications for board members of pharmaceutical companies, especially government-owned ones.

Received: September, 2019

1st Revision: March, 2020

Accepted: July, 2020

DOI: 10.14254/2071-8330.2020/13-3/12

JEL Classification: L22, L26

Keywords: board composition, return on assets, Tobin Q, pharmaceutical firms, India