Board composition and organizational performance: Two studies of insider/outsider effects

This paper presents two studies that examine the commonly held belief that corporate boards are more likely to have positive effects on organizational performance when composed of outside directors. The first study - a meta-analysis of 63 correlations - indicates that, on average, the greater presence of outsiders is associated with higher performance, but so too is the greater presence of insiders. Instead of providing evidence of a positive outsider effect, these results suggest the existence of a curvilinear homogeneity effect in which performance is enhanced by the greater relative presence of either inside or outside directors. The second study - a hierarchical polynomial regression analysis of data from 259 large US companies - confirms the existence of a curvilinear relationship between insider/outsider composition and performance measured as return on assets.