Various dimensions of the board of directors and firm performance in SMEs: A multistage theoretical framework and empirical investigation

Abstract

This study aims to develop a comprehensive, multistage theoretical framework and investigate the impact of board composition, its effectiveness, and its strategic and control roles on small and medium-sized enterprises' (SMEs) financial and social performance. This research is based on primary data obtained by conducting a telephone survey or personal interviews with a single respondent from the executive management team of 63 SMEs. Data collection took place over six months, from February to August 2024, filling out the questionnaire to measure the relationships between independent variables, such as board composition and roles, and dependent variables, including financial and social performance outcomes. The results confirm that board composition—including size and independence—does not explain SME performance. Instead, human capital on board significantly affects board positions and performance. Besides, the study reveals that the board's strategic role is more important than its control role, underscoring the significance of forward-thinking strategies. The study eventually indicates the most important theoretical, practical and policy implications of a successful board, which depend on real results like better financial performance and finding strategic opportunities. It also measures how effective boards are by looking at how much they contribute to the overall performance of the company, both financially and socially.