Board structure, intellectual capital, cost of capital and firm performance - A path analysis model

Abstract

This study examines the indirect relationship between board structure and firm performance with the mediating effect of intellectual capital and cost of capital. In addition, the study examines the total, direct and indirect effect of board structure on firm performance through intellectual capital and cost of capital using path analysis model. Analysis was made from 2010-2019 for a sample of 41 firms comprising of NZX50 index listed on New Zealand stock exchange. Fixed effect model revealed that only board independence is mediated by intellectual capital and the random effect model revealed that board size, CEO duality and board background and skill diversity to be negatively mediated by cost of capital and board independence, audit committee composition and gender diversity to be positively mediated by cost of capital. Finally, the path model provides support for the main research objective that the relationship between board structure (except gender diversity) and firm performance is mediated by the indirect effect of intellectual capital and cost of capital. The study provides useful insight to the board and policy makers about the importance of enhancing intellectual capital and to the academicians to incorporate mediation effects for a complete understanding.