The power of commitment : Skin in the game and its impact on firm performance

Abstract: Corporate governance's main purpose is to ensure that companies act in a way that is beneficial for their shareholders. This study presents skin in the game as a possible solution and investigates its impact on firm performance on the Swedish market. More precisely, the board of directors’ amount of skin in the game in the companies they manage and its impact on return on assets (ROA). Data of board composition and stock ownership are, among other variables related to the board of directors, used in a multiple regression to determine possible relationships with firm performance. Swedish corporate governance tradition advocates a clear separation of ownership and control. Despite this, a positive relationship between skin in the game and firm performance in Swedish companies is confirmed. ​​The conclusion of the study is that a board of directors with skin in the game increases firm performance.