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Purpose – We study the role of directors appointed by banks and those appointed by investment funds in the informativeness of accounting earnings in a low investor protection environment with a high presence of institutional directors.
Design/methodology/approach – We estimate all of the regressions using the Generalized Method of Moments procedure...
Context in source publication
Context 1
... it is total debt in year t divided by total assets at the beginning of year t; SIZE it is the natural logarithm of the market value of equity. Table 1 reports the percentage of institutional members on the board in Spanish companies. As we can see, on average, 21.14% of board members are appointed by institutional investors (8.09% by banking institutions and 13.05% by mutual funds). ...
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Citations
... Institutional investors possess the ability, capability, and means to oversee managers. The results of this study reinforce the opinions of earlier researchers, who found that institutional investors can encourage management to prepare financial reports cautiously, improving the quality of earnings (Bona-Sánchez et al., 2018) and lowering earnings management actions (Alves, 2020). ...
Research aims: This study examines the effect of corporate governance as proxied by institutional and managerial ownership and profitability on the cost of equity capital, both directly and indirectly, through accounting conservatism as a mediating variable.Design/Methodology/Approach: The population of this study was manufacturing companies listed on the Indonesia Stock Exchange in 2020–2022. The sample selection was carried out using the purposive sampling method, resulting in 230 data points and then tested using multiple linear regression.Research findings: Institutional ownership and profitability were revealed to have a positive influence on accounting conservatism, while managerial ownership had no influence. Profitability and accounting conservatism exerted a negative effect on the cost of equity capital. However, institutional ownership generated a positive effect, but managerial ownership did not affect the cost of equity capital. Further test results uncovered that the impact of institutional ownership and profitability on the cost of equity capital was mediated by accounting conservatism.Theoretical contribution/Originality: The findings of this research enrich previous research regarding the economic consequences of corporate governance, profitability, and accounting conservatism in equity markets in developing countries, especially Indonesia.Practitioner/Policy implication: The results of this research can be used as consideration for investors in developing country capital markets when making investment decisions.Research limitation/Implication: This research has limitations, including the relatively low adjusted R2 value. Proxies for corporate governance from ownership and board structure should be included in future studies.
... Another factor that influences financial performance and company value is investor protection ( [2]; [3]; [4]; [5]; [6]; [7]; and [8]). This is supported by [9] who provide evidence that the degree of investor protection has an impact on a company's reporting methods. ...
... (Lestari et al., 2014;Sienatra et al., 2015;and Julianti, 2015) also found the same thing. Meanwhile, research conducted by (Bona-Sánchez et al., 2018;Ambarwati & Stephanus, 2014;Astriani, 2014;and Hidayah, 2015) shows that managerial ownership has no effect on firm value. The effect of institutional ownership on firm value is also different. ...
... Meanwhile, (Fuerst & Kang, 2000) found a positive relationship between insider ownership and market value after controlling company performance. Associated with the results of previous research, the results of this study are relevant to research conducted by (Bona-Sánchez et al., 2018) It proves that the relationship between managerial ownership and firm value is negative, which means that other factors will connect the two variables. The theory of stewardship, in contrast to agency theory. ...
The purpose of this study was to provide empirical evidence that managerial, institutional, and public ownership affect company profitability; provide empirical evidence that managerial, institutional, and public ownership affect firm value; provide empirical evidence that managerial, institutional, and public ownership have an indirect effect on firm value; and provide empirical evidence that managerial, institutional, and public ownership have an indirect effect on firm value. This study uses secondary data from companies listed on the Indonesia Stock Exchange obtained from the Indonesian Capital Market Directory (ICMD) 2013. Samples were collected using the purposive sampling method and then analyzed using Path Analysis. The results showed that managerial ownership has a positive effect on profitability; institutional ownership has a positive effect on profitability; public ownership has a positive effect on profitability; managerial ownership has a positive direct or indirect effect on firm value; institutional ownership has a positive direct or indirect effect on firm value; public ownership has a positive direct or indirect effect on company value; profitability has a positive effect on firm value.
... Our sample is composed of companies in the Spanish IBEX35 index for the period 2013− 2016. The particular characteristics of Spanish firms, such as high ownership concentration, a unitary board system and voluntary good governance practices, are likely to lead to significant agency conflicts driven by a majority-minority conflict (Manzaneque et al., 2016a;Bona-Sánchez et al., 2018). Therefore, the study of the Spanish context offers an interesting scenario to analyze the effect of corporate governance on the likelihood of financial distress. ...
... Particularly, in environments with a high concentration ownership (like the Spanish context), large shareholders, who hold most of the voting rights, have a high power and may reach nearly full control over the governance of a firm, thus being detrimental for small investors (Shleifer and Vishny, 1986). In this scenario, large shareholders may exert an influence on management to maximize their own benefit regardless of the interests of minority shareholders (La Porta et al., 2000), who could suffer expropriation of their wealth, and this would increase the likelihood of financial distress in firms (Bona-Sánchez et al., 2018). Therefore, the struggle between the majority shareholders and the minority shareholders remains a basic agency problem (Renders and Gaeremynck, 2012). ...
This paper analyzes whether the compliance with corporate governance codes helps to mitigate the financial distress of firms. We examine three different levels of compliance: overall compliance, the compliance with the recommendations regarding the board of directors and the compliance with the recommendations on board subcommittees. Our results reveal that only the fulfillment with the recommendations about the board of directors leads to a reduction in the likelihood of financial distress. These findings extend the academic debate concerning the role of governance codes and their impact on firm outcomes, and have practical implications for both professionals and firms. Moreover, our findings emphasize the need to distinguish between the different types of recommendations to investigate the effects of these codes. In addition, the results can be useful for policymakers in the configuration of new requirements and recommendations regarding corporate governance structures. Furthermore, our results contribute to the literature, delving into the determinants of the financial distress of firms.
... Second, Spain is a suitable country in which to examine the Hillman categorization of boardrooms and the specific role of female directors with political connections due to the fact that Spanish boardrooms have a high number of directors with political connections, mainly explained by the high number of privatizations carried out in Spain during the past few decades (Bona-S anchez et al., 2014). Finally, because of the high concentration of ownership of Spanish firms and the relevance of institutional investors in this country (Bona-S anchez et al., 2018), the analysis of the ownership power of female directors is a very interesting issue. ...
... This led to most ex-politician to become board directors, which creates a good research setting to analyze the association between political connections provided by former politicians serving on boards and CSR disclosure. Second, in line with the majority of Continental Europe countries, is a civil law country characterized by firms with a high presence of institutional investors (Bona-S anchez et al., 2018), and a high ownership concentration (La Porta et al., 1999), as a result of a significant presence of controlling shareholders (Ruiz-Mallorquí and Santana-Martín, 2009). Finally, political, social and cultural changes in Spain in past years has increased gender diversity in senior management positions. ...
Purpose
This paper aims to analyze the role of female directors on CSR disclosure. It assumes the existence of faultlines when studying gender diversity and classifies female directors into three categories: industry experts, advisors and community leaders. It also examines the influence of the power of female directors as a moderator on the association between female director categories and CSR disclosure.
Design/methodology/approach
The paper bases on a dynamic generalized method of moments panel estimator which allows controlling for the unobservable heterogeneity and endogeneity and reduces the estimation bias.
Findings
Results confirm the double-sided nature of gender diversity, noting different behavior among female directors according to their experience and backgrounds. Moreover, the dominating owner position of female directors can balance and moderate the effect of female directors appointed for their technical knowledge or political and social ties. The results also confirm the necessity to not consider all women directors as a homogeneous group and explore the influence and interrelations of female faultlines on CSR disclosure.
Practical implications
The paper highlights the need to consider the specific skills, expertise, and connections of female board members when analyzing the effect of board composition, and supports the view that firms should emphasize the unique human and social capital of directors to understand how boards impact on firm strategies. Specifically, the authors support the recommendations of the European Commission (2011) regarding the need to increase skills and expertise when selecting new non-executive female board members.
Social implications
At a time when most governments are introducing active policies that require firms to nominate women to boards, the understanding of the consequences of women’s presence on boards and the interrelations between female power and the diverse categories of female directors is timely and important.
Originality/value
To the best of the authors’ knowledge, this is the first paper that provides empirical evidence to the scarcely studied area of the human and social capital of female directors’ roles in CSR disclosure, providing an alternative view of the role of women in corporate board effectiveness.
... This study makes at least three contributions to the literature. First, it adds to the literature on corporate governance (e.g., Bona-Sánchez et al., 2018), reporting that the adoption of certain practices in governance mechanisms contributes to substantial improvements in the quality of financial reporting in family firms, and that the lower independence of governance bodies in these firms does not appear to hamper this quality. Second, it contributes to the literature on quality of financial information (e.g., Cascino et al., 2010;Prencipe et al., 2011b;Torchia & Calabrò, 2016), showing that, in the context of concentrated ownership, family firms are more likely than non-family firms to restrict earnings management. ...
... The literature on listed firms reports that dispersed ownership structure and other government measures positively influence the quality of financial information (Alves, 2011(Alves, , 2014Bona-Sánchez et al., 2018;Callao-Gastón et al., 2008). However, this topic is under-researched in the family business context. ...
El objetivo del estudio consiste en analizar la calidad de la información financiera de las empresas españolas, comparando las empresas familiares y las no familiares, y relacionando dicha calidad con las prácticas de gobierno corporativo. Para alcanzar este objetivo se analizó una muestra de 650 empresas españolas durante el período 2011-2016. Con base en la teoría de la agencia y en la literatura sobre la riqueza socioemocional, los resultados muestran una mayor calidad de la información financiera en las empresas familiares, relación que se ve reforzada por los factores de gobierno corporativo. Nuestros resultados son consistentes con la investigación previa y con las premisas de la teoría de agencia, que indican menores asimetrías de información entre propietarios y gestores en el singular contexto de las empresas familiares. Además, nuestro trabajo proporciona evidencia empírica de que la participación de las mujeres en el consejo de administración contribuye a la mayor calidad de la información financiera en las empresas familiares, contribuyendo a explicar la heterogeneidad de las empresas familiares en términos de gestión del resultado contable. El estudio contribuye a cubrir la brecha que existe en la literatura sobre la influencia del contexto de empresa familiar y la influencia de la presencia de las mujeres en el consejo sobre la calidad de la información financiera.
... Therefore, it is worth reviewing prior studies that investigated determinants of stock informativeness. For instance, many papers argue that foreign ownership (Vo, 2017), a large foreign shareholder (He et al., 2013), monitoring by directors appointed by institutional investors (Bona-Sánchez et al., 2018), institutional shareholder coordination (Kim et al., 2018), and state ownership and economic reforms (Hou et al., 2012) enhance the information environment, promote effective monitoring, increase corporate transparency and thus increase the price informativeness. In contrast, concentrated ownership is found to be associated with lower earnings informativeness (Fan and Wong, 2002). ...
Purpose: This paper aims to examine the impact of stock market liquidity on the value of reported earnings in Egypt, proxied by the earnings–return relationship, during the period between 2006 and 2015.
Design/methodology/approach: To achieve this objective, this paper uses a sample including all active firms listed on the Egyptian Stock Exchange. This study employs multivariate panel data regression analysis with fixed effects estimated using robust standard errors, and control for other variables. All financial, accounting and stock market data are collected from the Thomson Reuters Worldscope and Datastream databases.
Findings: The empirical results report a significant positive relation between liquidity and earnings informativeness. This study argues that in environments with high information asymmetries, reported earnings are informative conditional on stock liquidity. All results remain valid when using heteroscedasticity-robust standard errors clustered across firms, alternative measures of liquidity, sub-groups of different sizes and estimating quantile regressions.
Originality/value: This paper identifies stock price liquidity as a significant determinant of stock price informativeness of earnings in Egypt. In particular, stock liquidity reduces agency conflicts and information asymmetries between managers and market investors, and thereby decreases managerial incentives to misreport earnings. This consequently enhances the quality of reported earnings and the informativeness of prices.
... In this regard, Bushee (1998) finds that transient institutional investors overweight near-term earnings and underweight long-run value, thus inducing mispricing. The excessive focus on current earnings by such institutional investors may also create incentives for earnings management that may decrease earnings informativeness (e.g., Bona-Sánchez et al. 2018). This thesis is also supported by Woidtke (2002), who found a negative relationship between public pension funds and firm value, and García-Meca and Pucheta-Martínez (2018), who found that directors representing fund institutions overweight short-term earnings potential, which decreases their incentives to improve a firm's CSR reporting. ...
Our main objective is to study the effect of institutional directors on firm performance, distinguishing directors according to whether they maintain business relationships (pressure‐sensitive) or not (pressure‐resistant). Our results show that in weak regulatory and low investor protection environments, institutional directors have a negative impact on corporate performance. Our evidence shows that this negative effect is mainly driven by the role of pressure‐resistant directors and not for those directors representing mainly banks and other financial institutions with a long‐term investment horizon. These findings have implications for numerous parties, such as institutional investors, regulators, potential new board members and other corporate governance reform proponents, who frequently examine board characteristics to assess the effectiveness of boards in value‐creation policies.
Purpose: This study examines the effect of corporate governance as proxied by institutional and managerial ownership and profitability on the cost of equity capital, both directly and indirectly, through accounting conservatism as a mediating variable. Design/Methodology/Approach: The population of this study was manufacturing companies listed on the Indonesia Stock Exchange in 2020-2022. The sample selection was carried out using the purposive sampling method, resulting in 230 data points and then tested using multiple linear regression. Findings: Institutional ownership and profitability were revealed to have a positive influence on accounting conservatism, while managerial ownership had no influence. Profitability and accounting conservatism exerted a negative effect on the cost of equity capital. However, institutional ownership generated a positive effect, but managerial ownership did not affect the cost of equity capital. Further test results uncovered that the impact of institutional ownership and profitability on the cost of equity capital was mediated by accounting conservatism. Research limitations/Implications: This research has limitations, including the relatively low adjusted R2 value. Proxies for corporate governance from ownership and board structure should be included in future studies Originality / value: The findings of this research enrich previous research regarding the economic consequences of corporate governance, profitability, and accounting conservatism in equity markets in developing countries, especially Indonesia.
We identify a sample of firms with directors employed by institutional investors and examine the effect of a direct channel of institutional monitoring. Using difference-in-differences tests, we find weak evidence that institutional directors have a positive effect on informational efficiency. More importantly, institutional directors have a significantly positive impact on stock returns over the long run. Further analysis shows that the presence of institutional directors leads to a slight increase of managerial entrenchment. Consistent with the notion that entrenched managers reduce risk-taking, we also find significant decreases in R&D investments and financial leverage, and significant increases in payouts for firms with institutional directors. The findings suggest that aligning with the interest of long-term investors, institutional directors deter firms from pursuing potentially value-decreasing investment projects and influence firms to return value to investors through lower debts and higher payouts, mainly share repurchases.
