Board of Director ‘Skin in the Game’ and Firm Performance

Abstract

This paper investigates the relationship between the non-executive directors’ ‘skin in the game’ and firm performance. How to best assure impartial corporate governance to limit the distance between shareholders and management has received much attention over the years. There is, however, limited research regarding how to align shareholder and director incentives, and what effect such alignments have on future firm performance. In this thesis, we collect board composition and ownership data for companies listed on OMX Stockholm Small Cap during 2015-2019. Our findings suggest that director ownership positively contributes to year ahead ROA, indicating ownership to impose incentive aligning effects that contribute to more efficient corporate governance. The result is useful for both remuneration committees, as well as for investors to consider before making investments.