Article

The Performance-Governance Relationship: The Effects of Cadbury Compliance on UK Quoted Companies

December 2000
Journal of Management and Governance 4(4):265-281

December 2000
4(4):265-281

Authors:

Robert Gordon University

This paper investigates the extent to which recommendations madeby the Cadbury Committee have affected UK company performance.The Committee recommended that certain internal monitoringmechanisms should be adopted by quoted firms because they weremore effective than others as a means of promoting shareholderinterests. The mechanisms analysed are duality, the number ofoutside directors on the board and the presence of a remunerationcommittee. We analyse the relationship between governancestructures and performance for two years, 1992 and 1995. Usingsamples of 200 companies for each of the years, we find that theproportion of firms adopting the governance structuresrecommended by Cadbury has increased. However there is mixedevidence that the structures are associated with betterperformance. Depending on the choice of dependent variable, thepresence of a remuneration committee has a positive effect onperformance and outside director representation has a negativeeffect. However, there is evidence of a simultaneous relationshipbetween outside director representation and performance, a resultconsistent with additional outside directors being appointedafter a period of poor performance. Complete compliance with themodel of governance proposed by the Cadbury Committee does not,however, appear to be associated with performance which is betterthan that achieved by either partial or non compliance.

Corporate governance in Kuwait: joining the dots between regulatory reform, organisational change in boards and audit committees and firm market and accounting performance

Article

Mar 2023

Purpose This study aims to examine the link between boards and audit committees and firm performance in Kuwaiti listed firms in the context of recent and extensive corporate governance regulatory reform. Design/methodology/approach Panel data regression analysis with fixed effects and clustered standard errors of firm performance for 61–97 listed industrial and services firms in Kuwait over a seven-year period. The dependent variables are the returns on assets and equity, the debt-to-equity ratio and leverage and Tobin’s Q and the independent variables comprise board of directors and audit committee characteristics, including size, the number of meetings and the numbers of independent and outside board and expert committee members. Firm size, subsidiary status and cash flow serve as control variables. Findings Mixed results with respect to the characteristics of the board of directors. Board size and independent and outsider board members positively relate only to Tobin’s Q and insiders only to debt to equity. For audit committee characteristics, committee size, independence and expertise positively relate to the return on equity and committee size and expertise only to Tobin’s Q. Of the five performance measures considered, board and audit committee characteristics together best determine Tobin’s Q. Research limitations/implications Data from a single country limits generalisability and control variables necessarily limited in a developing market context. Need for qualitative insights into corporate governance reform as a complement to conventional quantitative analysis. In combining accounting and market information, Tobin’s Q appears best able to recognise the performance benefits of good corporate governance in terms of internal organisational change. Practical implications The recent corporate governance code and guidelines reforms exert a mixed impact on firm performance, with audit committees, not boards, of most influence. But recent reforms implied most change to boards of directors. One suggestion is that non-market reform may have been unneeded given existing market pressure on listed firms and firms anticipating regulatory change. Social implications Kuwait’s corporate governance reforms codified corporate governance practices already in place among many of its firms in pursuit of organisational legitimacy, and while invoking substantial change to audit committees, involved minor change to firm performance, at least in the short term. Some firms may also have delisted in expectation of stronger corporate governance requirements. Regardless, these direct and indirect processes both improved the overall quality of listed firm corporate governance and performance in Kuwait. Originality/value Seminal analysis of corporate governance reforms in Kuwait, which have rapidly progressed from no corporate governance code and guidelines to an initially voluntary and then compulsory regime. Only known analysis to incorporate both board of directors and audit committee characteristics. Reveals studies of the corporate governance–firm performance relationship may face difficulty in model specification, and empirical significance, given the complexity of corporate governance codes and guidelines, leads in changing firm behaviour and self-selection of firms into and out of regulated markets.

The Impact of Being Compliant with Best Practices of Corporate Governance on the Financial Performance of Listed Companies in Sri Lanka (With special reference to the Dominant Industry Sectors)

Conference Paper

Full-text available

Nov 2021

Deepal Guruge

Code of Best practice on Corporate Governance and the Rules on Corporate Governance were introduced in 2008 and many companies are taking actions to comply with these conventions since 2008. The main objectives of the study are to measure the level of compliance with the Best practices of Corporate Governance and to examine its impact on the financial performance of Listed Companies in Sri Lanka. A Sample of 60 companies is selected randomly based on probability proportionate sampling technique and secondary data are collected for the years of 2009/10 & 2012/13. The level of compliance of companies which is measured through descriptive statistics is found to be around 56% and 75% in 2009/10 & 2012/13 respectively. The results derived through multiple regression analysis revealed that being compliant with board effectiveness and accountability & audit have a significant positive impact on the financial performance of listed companies in Sri Lanka in 2012/13, whereas that is absent in 2009/10. Hence, it is concluded that the level of compliance with best practices is being continuously improved after the introduction of the Codes whereas the improved level of compliance directly influences the performance of the corporates in Sri Lanka.

The Performance Consequences of Board Structure Changes: Evidence from Ghana

Article

Full-text available

Jan 2017

Corporate Governance, Political Connections and Firm Performance: The Role of Political Regimes and Size

Article

Full-text available

Jan 2020

This article empirically examines the relationship between corporate governance and firm financial performance, and the interplay of political connections of 150 non-financial listed Pakistani firms ranging from 2001 to 2014. Generally, and consistent with the prior researchers, we reported that corporate governance is an essential predictor of firm financial performance in Pakistan. Moreover, the results indicate that political connections substitute non-executive directors (NXD), executive directors (EXD) and board meetings (BM) in terms of firm performance measure return on asset (ROA), whereas NXD and EXD complement in terms of Tobin’s Q. We also found some variations in these effects, when moving from large to small size sampled firms and dictator to democratic regimes. Theoretically, our results support the Agency, Resource Dependency and Stewardship theories.

Corporate board structures and intellectual capital: evidence from banks in Africa

Article

Full-text available

Dec 2021

Purpose This study examines the nature of the relationship between board structures (BSs) and intellectual capital (IC) of banks in Africa. Design/methodology/approach Using annual data from financial statements of 366 banks from 26 African countries from 2007 to 2015, the study estimates IC using the value-added intellectual coefficient (VAIC) and BSs using board size, board independence and board gender diversity. The system generalized method of moments and panel-corrected standard error estimation strategies are used to estimate panel regressions. Findings There is a significant negative relationship between board independence and intellectual capital. The results also indicate that the IC of banks does not depend on board size and board gender diversity. Practical implications The study's findings provide evidence of the extent to which BSs have been instituted to support investments in intellectual capital as a means of improving the performance of banks in Africa. Originality/value This study provides some empirical evidence from Africa's banking sector to justify that banks with better IC have boards that are less independent. This study is one of the few studies that employs many countries' data.

Governance disclosure quality and market valuation of firms in UK and Germany

Article

Full-text available

Jun 2020
INT J FINANC ECON

This study develops a 'comply or explain' index which captures compliance and quality of explanations given for non-compliance with the corporate governance codes in UK and Germany. In particular, we explain, how compliance and quality of explanations provided in non-compliance disclosures, and various other internal corporate governance mechanisms, affect the market valuation of firms in the two countries. A dynamic generalised method of moments (GMM) estimator is employed as the research technique for our analysis, which enabled us to control for the potential effects of endogeneity in our models. The findings of our content analysis suggest that firms exhibit significant differences in compliance, board independence and ownership structure in both countries. The 'comply or explain' index is positively associated with the market valuation of UK firms suggesting that compliance and quality governance disclosure is value relevant in the UK. Institutional blockholders' ownership is however, negatively associated with the market value of firms, which raises questions about the monitoring role of institutional shareholders in both countries. We argue that both compliance and explanations given for non-compliance are equally important, as long as valid reasons and justifications for non-compliance are provided by the reporting companies. These findings thus imply that the 'comply or explain' principle is working well and that UK and German companies could benefit from the flexibility offered by this principle. With respect to the role of board size, board independence, ownership structure, and institutional ownership of firms, this study offers policy implications.

Governance disclosure quality and market valuation of firms in UK and Germany

Article

Full-text available

Jun 2020

The mediating role of firm risk: The case of the insurance sector in Saudi Arabia

Article

Dec 2023

This study aims to examine the mediating effect of firm risk on the relationships between board structure and firm performance. The multivariate panel data regression technique is employed to analyse the mediating impact of firm risk on 27 listed insurance companies on the Saudi Stock Exchange (Tadawul) from 2016 to 2021. The findings of this study indicate that firm risk partially mediates the relationship between audit independence and Tobin's Q. In contrast to the existing literature, the study reveals that boards composed of independent members may lack effectiveness in their monitoring role, leading to higher risk-taking behaviour. This paper contributes to the literature on corporate governance and firm performance by examining the association through the lens of firm risk.

L’impact de la gouvernance sur les engagements sociaux et environnementaux des organisations à but non lucratif : une analyse quantitative des données de 182 associations françaises

Article

Sep 2023

Guillaume Plaisance

Cette étude cherche à répondre aux questionnements des associations quant à la pertinence de la gouvernance et propose une réflexion par champ institutionnel plutôt qu’une approche globale pour toutes les associations. A partir d’hypothèses basées sur les travaux de recherche menés sur les organisations non-lucratives et la théorie néo-institutionnelle, les pratiques de 182 associations françaises ont été analysées à partir de l’exploitation d’une base de données quantitatives. Les résultats des régressions multiples menées font état d’un effet positif de la gouvernance sur les engagements sociaux et environnementaux, tout en soulignant la nécessité de procéder à des études au cas par cas de ces liens. L’association de mécanismes de gouvernance à chaque type de responsabilités telle que proposée par la théorie néo-institutionnelle est alors explorée. Les échelons de la pyramide des responsabilités sociales et environnementales dédiés à la reddition des comptes et à l’éthique ressortent comme liés. Nos résultats débouchent sur un questionnement du concept de responsabilité sociétale des organisations et sur le constat que la théorie néo-institutionnelle ne permet pas d’étudier l’efficacité des mécanismes qu’elle promeut. Ils nous conduisent à recommander d’actualiser les référentiels français et les chartes dans ce sens.

The politician as a CEO, corporate governance and firm value

Article

Jul 2023
J Int Financ Market Inst Money

Using a data set of two important emerging markets namely Taiwan and Pakistan, we investigate an unexplored dynamic of the top leadership i.e. the politician as a CEO and determine their impact on firm value. We show that the presence of the powerful politician as a CEO tends to limit the board power and endorse managerial entrenchment i.e. put their self-interests ahead of the firm’s goals, which in turn, damage the firms’ value. We find a significant negative moderating effect of the political CEOs on the relationship of concentrated ownership, board independence and firm value.

Audit committee characteristics and audit quality on risk-taking behaviour of banks in an emerging economy

Article

Full-text available

Dec 2022

The study examined the effect of audit committee size, audit committee independence and audit quality on bank risk-taking behaviour in Ghana. The study collected data on 18 out of 24 commercial banks in Ghana over a 10-year period. The study relied on panel-corrected standard errors (PCSE) to establish the relationship between the variables mentioned above. The results of the study showed that audit quality reduces bank risk-taking behaviour in Ghana. The study also found that audit committee independence reduces excessive risk-taking behaviour by banks in Ghana thereby increasing their Z-scores. The study also found that even though there was a positive coefficient between audit committee size and the Z-scores of commercial banks in Ghana, the relationship was statistically insignificant. On the control variables, the study found that bank liquidity reduces risk-taking behaviour whiles non-performing loans increases bank risk-taking behaviour. The implication of the finding is that the Bank of Ghana should emphasize the need for banks to have independent audit committees and high-quality audits to help reduce their excessive risk-taking behaviour to prevent another financial sector clean-up. The study is important as it demonstrates the importance of audit quality and audit committee independence in reducing excessive risk-taking by commercial banks in Ghana which is critical for the sustenance of the financial system of Ghana. The study also supports the theoretical view that quality audit helps to improve the monitoring of management and ensure that banks are run properly

Corporate board structures, financial performance and stability: evidence from banking markets in Africa

Article

Full-text available

Nov 2022

Purpose This study aims to examine the effects of board structures (BS) on the financial performance and stability of banks in Africa. Design/methodology/approach Using annual data of 366 banks from 26 African countries from 2007 to 2015, the study estimates growths in financial performance using net interest margin and risk-adjusted return on assets; bank stability using z-scores; and BS using board size, board independence and board gender diversity. The system generalized method of moments and ordinary least squares panel-corrected standard error estimation strategies are used to estimate panel regressions. Findings The study concludes that board independence has a negative and significant relationship with financial stability but has diverse relationships with financial performance. Board size and board gender diversity have insignificant relationships with financial performance and stability. Research limitations/implications The study has relevant implications for practitioners, policymakers and the academic community. The findings provide evidence of the extent to which BS have been instituted to influence the financial profitability and stability of banks in Africa. Originality/value This study offers robust evidence on the role of BS in the performance and stability of banks; using a multidimensional conceptualization of the performance and stability of banks in 26 countries in Africa.

Concept of Independent Director in South Asian Developing Countries: The Case of Banking Sector in Bangladesh

Article

Full-text available

Aug 2022

Purpose: The study aims to identify the perception of the independent director in Bangladesh's banking sector and the concept and implications in different developing countries and international standards by reviewing existing literature justifying theoretical contribution. Methodology: Listed 32 banks of the Dhaka Stock Exchange are included as a population where 36 respondents from 6 listed banks as a broad stakeholder group are interviewed through convenience and snowballing technique. The study is descriptive with content analysis to justify the understanding of previous studies about the independent director. Findings: Considering Bangladesh as a South Asian developing country, this study indicates differences in corporate governance infrastructure, independent director policies and practices with family orientation, policy coordination and implementation related to other developing countries of South Asia, and international standards. Moreover, the findings expressed somewhat different perceptions and challenges independent directors faced in an actual situation in Bangladesh's banking sector. Practical Implication: This study might help identify the accurate perception of independent directors and trends and challenges in Bangladesh's banking sector. The report might guide code formulators and policy coordinators to understand why and how the policies addressing independent directors' rules and responsibilities should look in Bangladesh's banking sector. Originality: There is no such previous study highlighting this issue. Now it urges the need to understand the perception of the concept of independent directors among the broad stakeholder groups of the banking sector of Bangladesh to identify whether the actual scenario and policies are aligned or questionable. Limitations: This paper includes a small number of respondents which should not be the case. Here, only the listed 32 banks of DSE are included as a population, where 36 respondents from 6 listed banks as a broad stakeholder group are interviewed through convenience and snowballing technique which is not mentioned here as the data has confidentiality issues and is not found in the archival.

Facing economic and business complexity: An analysis of the evolving features of the board of directors’ meetings in Italy

Article

Full-text available

Oct 2022

This study analyzes how corporate governance practices evolve to keep up with external complexities. The analysis is carried out on all Italian listed companies in the period 2018–2020. The findings suggest that Committees of the Board of Directors increased in number during the period, and the frequency of their meetings also increased. There was little variation in the frequency of the Board of Directors’ (BoD) meetings. The paper provides empirical evidence on the current trend for establishing smaller working parties that do not burden the whole BoD when the firm faces issues for which specialized skills and greater attention are required. Our study contributes to previous literature on corporate governance by jointly analyzing different mechanisms of BoD. Moreover, to the best of our knowledge, it explores for the first time the duration of the meetings of the BoD and its Committees.

A Comparative Study of Board Effectiveness and Corporate Performance in Sri Lanka

Conference Paper

Full-text available

Sep 2022

Corporate Governance is identified as a principle which has an enormous impact on the financial performance of limited liability companies. Under the umbrella concept of " corporate governance", the "board effectiveness" is considered one of the main aspects debated and broadly discussed in the literature. It was observed that there is a dearth of comparative empirical studies carried out on developing countries in the world. Therefore, this study was conducted to fulfil this empirical gap.

International Journal of Academic Multidisciplinary Research (IJAMR) Corporate Governance and Firm Performance of Non-Financial Firms in Pakistan

Article

Full-text available

Jun 2020

This research study examines the effect of corporate governance (board advisory group) on financial performance (ROA) of non-financial firm listed in Pakistan Stock Exchange. Out of 399 firms listed in PSX, a sample of196 firms were selected randomly by using formula of Krejcie & Morgan (1970) covering period of 2002-2018 from the annual reports published firms or from published by State Bank of Pakistan. Pooled regression model were selected from the diagnostic tests. Results of the research shows that corporate Governance has a significant effect on the on financial performance of non-financial firms. The findings recommends that The institutional shareholdings have significant effect on ROA, the firm should increase their institutions as this will increase their profit and value and the firm should adopt debt financing who have less shareholders as this will give them tax yield and will increase their profit but the firm who are interested in equity financing will try to lower the debt level as this will negative effects on the firm value.Furthermoret he managers should be involved as shareholders as this will increase their hold and they will increase the firm profit. INTRODUCTION Corporate governance is the name of relationship between management, board of directors, stakeholders and shareholders of the company. Corporate governance is a system through which the firm is directed and controlled. It represents the set of rules and producers to be followed by the firm to achieve its objective efficiently (Durney and Kims, 2005). According to La Pota et al. (2000) "Corporate Governance is a set of procedures or means by which minority shareholders/ outside investors protect themselves from expropriation and fraudulent activities of management/ Insiders". Shleifer and Vishy (1997) explains the Corporate Governance as the ways by which the investors who provides equity to the firm get the return on their investment in a lawful manner. The basic features of good corporate governance includes clear corporate structures, the producers and responsibility of managers and board of directors towards the best interest of the firm. The board of directors is very vital for corporate governance mechanism. This board is responsible to ensure that firm has a good mechanism of shareholder rights, solid environment, a good disclosure, transparency and exert for the high interest of the firm. The board plays a key role in directing and controlling and is accountable for the business operation and firm. The recent financial crises has been found a lot of shortcoming in the corporate governance mechanism and the regulators. Corporate governance has shown that weak monitoring causes risk and effect the financial performance badly (Chidambaram et al, 2008). Corporate governance represents the procedures and rules of firm which help in attaining the stake of stakeholders and the interest of corporation. (Clarke, 2004). Dittmar and Smith (2007) found that better corporate governance system helps the firm towards better approach in financing and lowering capital cost. This is the prime responsibility of BOD to manage entire firm in better way; the BOD also plays a vital role in making decision about financing mix. According to Classens et al, (2002) sound governance practices facilitate firm in finding best avenues and markets and minimizing the cost of capital for the firm shareholders. Keeping in view the importance of corporate governance, this study is conducted with the main objective to investigate the main component of corporate governance practices and its impact on performance of non-financial firm in Pakistan. .

La contribution des mécanismes de gouvernance à la performance et à l’impact des organisations à but non lucratif : une approche par les parties prenantes de la gouvernance des associations françaises

Thesis

Full-text available

Sep 2021

Guillaume Plaisance

Objectif : La présente recherche explore la relation entretenue entre la gouvernance des organisations à but non lucratif et leur performance globale, qui inclut également leur impact sur leurs parties prenantes. Elle affiche donc des objectifs analytiques autour des liens avec les parties prenantes : avec qui œuvrer et à qui rendre des comptes ? comment rendre des comptes et raffermir les liens avec elles ? quels comptes rendre et quels sont les critères d’évaluation ? Les effets de la gouvernance, les formes prises par la reddition des comptes et la construction sociale de la performance et de l’impact organisationnels sont donc particulièrement étudiés.Approche et méthode : L’ancrage principal est la vision contingente des organisations, à laquelle appartiennent les théories des parties prenantes et de la dépendance aux ressources. A partir d’une démarche hypothético-déductive insérée dans le paradigme épistémique réaliste critique (PERC), les hypothèses issues de la littérature sont testées à partir de méthodes d’analyses de données textuelles, de régressions multiples logistiques et linéaires ainsi que de modèles d’équations structurelles. Les analyses ont porté sur les données des plus grandes associations françaises, sur un questionnaire auprès des dirigeants associatifs pendant la crise de la Covid-19, sur une enquête auprès de parties prenantes individuelles ainsi que sur le cas des Jeunes Agriculteurs.Résultats : Les études menées ont permis de montrer que les mécanismes de gouvernance s’expliquent notamment grâce au secteur et aux actions de l’association. En revanche, les liens entre gouvernance et performance globale sont à étudier au cas par cas. Il en va de même pour les effets de la reddition des comptes sur la performance. La performance à court-terme des associations, à savoir leur viabilité, est renforcée par le maintien des dispositifs de gouvernance tandis que l’adoption d’une orientation sociétale a des effets contrastés sur la viabilité. Enfin, globalement, la gouvernance améliore l’impact et la qualité de relation avec les parties prenantes qui elle-même a un effet positif sur l’impact organisationnel. Cependant, ces résultats doivent être étudiés dans le détail des mécanismes de gouvernance, des parties prenantes et des dimensions de la performance.Implications théoriques : Les résultats obtenus permettent de répondre aux objectifs fixés. Ainsi, la vision contingente de la gouvernance des organisations à but non lucratif conduit à une forte adaptabilité (dans chaque organisation et à ses parties prenantes). Le reporting est un mécanisme crucial de reddition des comptes mais la relation avec les parties prenantes est aussi particulièrement pertinente. Enfin, l'ensemble des concepts abordés sont contingents, permettant d'expliquer une vision émotionnelle et subjective de l’impact ainsi que la multidimensionnalité de la performance. Les théories mobilisées sont donc particulièrement adaptées pour les associations et leur opérationnalisation a été revisitée.Implications praticiennes et sociétales : Les résultats invitent à une mesure raisonnable et flexible de l’impact des organisations à but non lucratif et soulignent le caractère crucial de la gouvernance pour améliorer la performance et l’impact, en dépit des méfiances. La priorisation des parties prenantes est en outre cruciale, pour éviter les problèmes associés à la reddition des comptes holistique. Les composantes de la qualité de relation peuvent alors devenir des critères de hiérarchisation et de priorisation des parties prenantes, car elles varient selon les parties prenantes et ont un effet sur la performance et l’impact.

A contingency framework of enterprise governance in the UK: A value-based management approach

Thesis

Mar 2012

Corporate governance (CG) has recently received much attention because of the wave of financial scandals in the early 2000s and the more recent global financial crisis. CG reforms, including laws, codes and listing rules have been established to protect shareholders’ rights and restore investors’ confidence in the capital market. These reforms have largely contributed to the evolution of internal and external governance mechanisms that are aimed at mitigating agency conflicts between managers and shareholders. However, overemphasis has been placed on the monitoring and control dimensions of governance, which may hinder entrepreneurial activities, obscure business prosperity and contribute to a narrow perspective on CG. It has been argued that there is a need to broaden CG beyond compliance (conformance) to a set of rules and laws, to include the performance aspects of governance that focus on strategy and value creation. In other words, governance should not only focus on monitoring managerial performance to ensure accountability to shareholders, but also on mechanisms that motivate management to optimise shareholders’ wealth. Enterprise governance (EG) framework has been introduced to keep the balance between the conformance and performance dimensions of governance. However, few studies address the possible tension between conformance and performance. Moreover, there is no agreement among these studies on the relationship between conformance and performance in the governance context. Arguably, Value-based Management (VBM) is an appropriate approach to address the issue of EG. VBM adopts value creation as an overall objective, develops a strategy that contributes to value creation and integrates it into decision-making. In this way, VBM can act as an effective mechanism for motivating management to maximise shareholder wealth, which works in parallel with other CG mechanisms, to mitigate agency conflicts resulting from the separation between ownership and management. This study aims to develop a contingency framework of EG through operationalising the conformance using CG and performance using corporate entrepreneurship (CE). This framework examines the inter-relationships between VBM, compliance with the Combined Code on Corporate Governance (CCCG), CE and the ultimate effect on organisational performance. More specifically, the study empirically examines the effect of compliance with the CCCG on CE, and whether VBM can achieve a balance between compliance with the CCCG and CE, should a conflict exist. The study also examines whether a fit between contingency variables (company size, agency conflicts, uncertainty, strategy and decentralisation), VBM, compliance with the CCCG codes and CE is associated with organisational performance. To achieve the aim of this study a cross-sectional survey, based on a questionnaire, is conducted to identify the level of VBM implementation, contextual and organisational factors in the large and medium quoted companies in the UK. The questionnaire targets the Chief Financial Officers (CFOs) in these companies as key informants. In addition, a content analysis of the annual reports of the sampled companies is undertaken to measure the level of compliance with the CCCG. Financial data (e.g. organisational performance) have been obtained from the DataStream, Fame and Thomson One Banker databases. iii Partial Least Squares Structural Equation Modelling (PLS-SEM) is adopted for data analysis and hypotheses testing. The results suggest that VBM implementation is positively associated with agency conflicts, low cost strategies and decentralisation. Compliance with the CCCG is positively associated with agency conflicts and company size. CE is positively associated with company size, uncertainty and differentiation strategies. In addition, the fit between compliance with the CCCG and contingency factors significantly predicts the marketbased performance. The fit between CE and the contingency factors significantly predict the perceived performance. However, the results regarding the effect of VBM on organisational performance are mixed. While VBM has no significant direct effect on the market-based performance, VBM has indirect positive effect on the market-based performance acting through compliance with the CCCG as an intervening variable. VBM is significantly associated with compliance with the CCCG but not with CE. No evidence is found for negative association between compliance with the CCCG and CE. The results support a large number of the proposed relationships between the contingency factors, VBM, compliance with the CCCG and CE. The results also suggest that using both compliance with the CCCG and CE as intervening variables in the relationship between VBM and organisational performance contributes to explaining the mixed results in the VBM literature. In terms of the EG framework, VBM does not keep a balance between conformance and performance. VBM emphasises the compliance with the CCCG (conformance) at the expense of CE (performance). The results did not provide significant evidence of a conflict between compliance with the CCCG and CE, the area which lacks empirical evidence. This study contributes to the literature at different levels. At the theoretical level, this study develops a theoretical model that links a performance management system (PMS), i.e. VBM, to CG practices and CE. This model attempts to bridge the gap between different disciplines, including management accounting, CG and entrepreneurship. Furthermore, combining both the contingency theory and the agency theory lenses contributes to the development of a comprehensive model of EG. At the methodological level, unlike previous studies, this study measures VBM practices on a continuum, rather than categories. Multiple data collection methods are used, and a powerful statistical technique (PLS-SEM) is adopted for data analysis. At the empirical level, the study is conducted in the UK. Though it is different from the US in many aspects, very few studies have been conducted in this context in many research areas such as VBM, CG and CE.

The Impact of Corporate Governance Mechanism over Financial Performance: Evidence from Romania

Article

Full-text available

Sep 2021

In the context of the globalization and internationalization of economies, to efficiently attract financial and intellectual capital that is necessary for business sustainability, the mechanisms of corporate governance have to be based on gaining the trust of all the interested parties. These objectives require an organizational culture and a climate which is based on correctness, responsibility , transparency, and efficiency, in which ethical principles govern the spread of behaviors in the entire entity. This research identifies the relation between the corporate governance and the entities' financial performance using the specific context of Romania. The findings of this study reveal new insights on the corporate governance and financial performance based on a sample of companies listed on the Bucharest Stock Exchange. The results show a positive correlation between the net accounting results, earnings per share, and the duality of the CEO, and a negative correlation between price per share and the duality of the CEO.

Revisiting the relationship between board practices and firm performance

Article

Full-text available

Jan 2021

Andrews Owusu

This paper examines whether and how firm performance is influenced by board practices in Ghana. The analysis shows that chief executive officer (CEO) duality has a negative impact on firm performance, evidence that supports agency theory’s position. Further analysis shows that the smaller Ghanaian board size appears to be optimal because it has a positive impact on firm performance. However, the larger non-executive director representation on the board has no impact on firm performance. Overall, these results suggest that the Ghanaian firms should be encouraged to separate the role of CEO and the board chair positions, have a board size of between eight and nine, and make good use of non-executive directors’ time in the board decision process if they are to achieve better performance.

Examining the impact of corporate governance reforms on firm performance in emerging markets: The mediating effect of board roles

Article

Full-text available

Jan 2020

The notion of corporate governance has been given credence on the policy agenda in many countries across the globe, especially after the frequent non-stop worldwide cases of corporate fraud and scandals. This has brought about the massive campaign on corporate governance reforms on finding dynamic corporate practices, structures, and systems that ensure that firms remain profitable, attractive, and sustainable. This study examines the effect of board structural characteristics (BSC) to achieve firm performance (FP) via the mediating effects of board roles (BRs) (frequency of board meetings (FOBM) and board size (BZ)) and the intervening role of corporate governance (CG) code which is an innovative model. By collecting data for 392 listed companies in South Africa for the period 2006-2018 and by employing the generalized method of moments (GMM) model, the findings of the study reveal that FOBM and BZ mediate the relationship between BSC and FP. Furthermore, the study finds a novelty in the interactive effect of corporate governance reforms with BSC on BRs. The study uncovers significant incremental effects of corporate governance reforms interacting with the BSC. These interactions significantly increase the relation after the implementation of the CG code.

Workforce reductions and post-merger operating performance: The role of corporate governance

Article

Jan 2021
J BUS RES

This paper examines whether corporate governance mechanisms influence the association between workforce reductions and post-acquisition operating performance. Using UK-based acquisitions, it is found that there is a negative relationship between employment reductions and post-acquisition operating performance. However, the results show that this negative association becomes positive when the board has a substantial equity ownership. This suggests acquirers with higher levels of board ownership make better quality layoff decisions and, thereby, achieve operating performance improvement subsequent to workforce reductions. The results also indicate that larger board size and greater board independence decrease the negative effect of acquisition-related workforce reductions on subsequent operating performance. Further, our results show that CEO duality increases the negative relationship between employment reductions and post-acquisition operating performance. Overall, the results suggest that corporate governance plays an important role in understanding the performance effect of acquisition-related workforce reductions.

Evaluating the impact of compliance with governance recommendations on firm performance: The case of Spain

Article

Aug 2020

In this paper, we empirically examine whether higher levels of compliance with the recommendations included in the Spanish Unified Good Governance Code (UGGC) have an impact on firm performance using a unique hand‐collected panel data set of 145 listed companies for the research period between 2007 and 2012. We find that, in spite of the increasing compliance trend, there is no conclusive evidence that adherence to the UGGC guidelines is a performance relevant factor. This result seems to be robust, as it holds in the main analysis as well as in all the additional analyses conducted. Therefore, our findings would further support the lack of consensus in this line of research regarding the true impact of compliance with the globally disseminated codes of best corporate governance practices on firm performance. The generally inconclusive findings should suggest to shareholders and stock analysts that high scores on these measures do not necessarily translate into higher performance, despite the notion that “good governance” ought to be beneficial.

Corporate governance mechanisms and R&D intensity in OECD courtiers

Article

May 2020
Corp Govern

Aws Alhares

This study investigates the impact of Ownership structure and Board Structure on risk-taking as measured by R&D Intensity in OECD countries. A panel data of 300 companies from Anglo American and European countries between 2010 and 2016 were used. The ordinary least square multiple regression analysis procedure is used to examine the relationships. The findings are robust to alternative measures and endogeneities. The results show that institutional ownership, board size, independent directors, and board diversity are negatively related to risk-taking, with greater significance among Anglo American countries than among Continental European countries. In contrast, the results show that director ownership is statistically insignificant. This study extends, as well as contributes to the extant corporate governance literature, by offering new evidence on the effect of ownership and board structure on risk-taking between two different traditions. The findings will help regulators and policy-makers in the OECD countries in evaluating the adequacy of the current corporate governance reforms to prevent management misconduct and scandals. These findings are relevant for companies aiming to adopt the most suitable governance mechanisms to pursue their R&D objectives and for policymakers interested in promoting R&D investment.

Corporate governance mechanisms and R&D intensity in OECD courtiers

Article

Full-text available

May 2020
Corp Govern

Aws Alhares

Examining the Impact of Corporate Governance on Banks' Performance using CAMELS Approach: A Panel Data Study of Selected Banks in Bangladesh

Article

Full-text available

Sep 2019

Research Question/Issue: This study aims at understanding the impact of corporate governance on the performance of commercial banking corporations in Bangladesh. Here CAMELS score is perceived as a performance measurement tool. Research Findings/Insights: Using archival data (annual reports) from a panel sample of 15 companies between 2010 and 2015, we found that none of the corporate governance indicator variables appears significant. It is also revealed that board size, member of the audit committee, marginal shareholding, shareholding by board are negatively related with bank performance. Where gender diversity in board, participation of independent director, audit committee, marginal shareholding, number of board meeting, number of board subcommittee are positively related to CAMELS score. Theoretical/Academic Implications: This study allows heuristic support for the banking corporations to underrate the corporate governance issues as determinants of financial performance. Additionally, we tried to establish CAMELS score as a performance yardstick. As such, it opens up new avenues of research for the performance evaluation literature of banking corporations. Practitioner/Policy Implications: This study comes up with strong effort to highlight the insights for the policymakers and thinkers to become interested in enhancing the effectiveness of corporate governance practices within banking sector so that financial performance escalates significantly.

Board Characteristics and Firm Performance: Evidence from Listed Banking Companies of Bangladesh

Article

Full-text available

Mar 2016

This paper tries to explore a comprehensive set of board characteristics and investigates their impact on financial performance of listed banks in Bangladesh. Based on observations of 90 firm-years from all 30 listed banks for the year 2011-13, the research finds that, board size has significantly positive impact on ROA and ROE and board sub-committees have a significantly negative effect on ROE. However, there is no significant relationship between board composition in the form of representation of outside independent directors and firm performance. Similarly, gender diversity in the board has insignificant effect on the firm performance. Contrary to hypotheses, board activities (holding and attending board meetings) as well as board shareholding have insignificant influence on bank performance in Bangladesh.

MODERATING EFFECT OF CORPORATE GOVERNANCE POLICIES ON INTERNAL AUDIT AND BOARD OF DIRECTOR TOWARDS DISCLOSURE CREDIBILITY IN JORDAN

Thesis

Full-text available

Sep 2019

Financial disclosures are a potentially valuable source of information for investors, but must be perceived as credible to be used. Credible financial reporting enhances the efficient allocation of scare financial capital to promising investment opportunities, which in turn maximizes the shareholders’ wealth. Prior studies on Jordanian companies revealed the considerable variations in the extent of disclosure by the companies with regard to the quality, content and time lag in the reporting of financial statements. The incomplete and late information makes it difficult for its stakeholders and beneficiaries to take the right decision in relation to the firm. Some studies suggest that internal audit and board of directors highlight, have same impact on the credibility of the disclosure. Accordingly, this study examine the practices of internal audit and board of directors, and how these two impact the disclosure credibility in term of completeness and timely of reporting by incorporating corporate governance policies as the moderating factor on the relationship. This study employed mix-method approach and used two types of data, primary and secondary data. Primary data on internal audit practices was collected through a survey on the CEO/CFO of Jordanian public listed companies while secondary data on board of directors’ characteristics were gathered from the companies’ annual reports. The final 172 questionnaires/companies completed and usable were analysed by using Statistical Package for the Social Sciences (SPSS 23). The study found a positive significant relationship between internal audit practices (audit independence, audit efficiency) and board of directors (board independence and leadership structure) with disclosure credibility in term of completeness. However, a negative significant relationship was found between incentives to auditors and board size with completeness of disclosure credibility. In addition, the study found that internal audit (audit independence and audit efficiency) and board of directors (leadership structure) has a positive significant relationship with disclosure credibility in term of timeliness. On the other hand, there is no significant relationship between incentives to auditors and board independence with timely disclosure credibility. Corporate governance policies also act as a moderator in the relationship between leadership structure and disclosure credibility in term of completeness. The findings provide several implications for policymakers in terms of assessing corporate governance policies, particularly related to board of director, internal audit and disclosure in Jordanian public listed companies. The companies can enhance and improve the disclosure credibility in terms of completeness and timeliness according to the International Accounting Standards Board and corporate governance policies that have been established to reduce any negative impact on the its credibility.

CORPORATE GOVERNANCE MECHANISMS, AGENCY COST AND FINANCIAL PERFORMANCE: A PANEL REGRESSION APPROACH

Article

Full-text available

Jan 2013

Godfried Asamoah

The purpose of the study is to assess role of corporate governance mechanisms in maximizing shareholder value of banks listed on the Ghana Stock Exchange (GSE). Using a purposive sampling technique to study seven (7) banks of the financials industry listed on the GSE, Multiple regression analysis based on Ordinary Least Squares Estimation (OLS) was used to analyze data using the SPSS statistical package. The study came out with the following findings: First, corporate governance mechanisms exert deferential effects on agency costs. Some positively affect agency costs (e.g., board size, additional directorships and managerial ownership); others have a negative effect (e.g. Board composition and CEO tenure) whereas others really do not significantly influence agency costs, either positively or negatively (e.g. Board diversity, Institutional ownership, Debt, and Institutional ownership). Secondly, in respect of the influence of corporate governance mechanisms on shareholder value, the following were the findings : whereas some corporate governance mechanisms, (e.g., Both board size and board diversity) minimized shareholder value measured as dividend pay-out ratio, some, such as Board composition, and Managerial ownership, however, maximized it, with others like CEO tenure, additional directorships held by CEOs, institutional ownership and debt not significantly minimizing or maximizing shareholder value (measured as dividend pay-out ratio). Thirdly with respect to the effect of agency costs on shareholder value, it was found that agency costs exerted a statistically significant negative effect on dividend pay-out ratio and a significant positive effect on dividend per share. Thus, the effect of agency costs on shareholder value depended on the proxy used for measuring shareholder value. Finally, it was empirically ascertained whether or not all corporate governance mechanisms affect shareholder value, and the following conclusions were drawn: Whereas some corporate governance mechanisms maximized shareholder value, some did not, and others had only a neutral effect on shareholder value. It was also observed that the kind of proxy used in measuring shareholder value might have also affected the results.

The Substance of Good Corporate Governance: an Interpretative Analysis of Corporate Governance Quality and its Metrics

Article

Aug 2018

Despite the increasing number of studies on corporate governance, the study of what is understood as ‘‘good’’ corporate governance and how this ‘‘quality’’ is measured has not been extensively approached; thus, what constitutes good corporate governance remains unsolved. To examine the substance of corporate governance quality, we undertake an interpretative analysis of this concept. We conclude that the deep meaning of corporate governance quality is anchored to the theoretical lens adopted to approach it and that agency theory represents the mainstream method employed in this task. Our results question the validity of agency-based metrics of corporate governance for the two following reasons: the endogeneity problem they embed and the agency Universalist approach that does not capture the holistic complexity of corporate governance at a firm level. To tackle such limitations, we propose the behavioural approach to fully capture the substance of what makes ‘good’ corporate governance and to measure it.

Corporate Governance and Performance of Firms: An Empirical Evidence from the Banking Sector of Ghana

Article

Full-text available

Mar 2017

The study investigates the relationship between corporate governance and the performance of banks in Ghana in terms of their financial performance. Primary and Secondary data were collected through the administration of interview questionnaires and from the Ghana Association of Bankers respectively. In analyzing the data, panel data methodology was used. The findings show that large board size, long serving CEOs, size of audit committee, audit committee independence, foreign ownership, institutional ownership, annual general meeting and dividend policy are positively related and associated with the financial performance of banks in Ghana. The banks are encouraged to adopt good corporate governance practices to improve on their financial performance and also protect the shareholders. Most importantly, the regulatory authorities must ensure compliance with good corporate governance and apply the appropriate sanctions for non-compliance to help the growth and development of the banking sector. The main contribution of the study to knowledge lies in its effort in strengthening corporate governance beyond the rights and responsibilities of different stakeholders in the management of a firm into areas involving the relationship between finance providers and a firm, compliance with legal, ethical and environmental needs of the society among others. This contribution has in no small way helped in enhancing my understanding about the interpretations which have shaped the corporate governance in relation with performance of the firm both in theory and practice.

Corporate Governance and Performance of Firms: An Empirical Evidence from the Banking Sector of Ghana

Article

Full-text available

Mar 2017

Corporate governance, board characteristics and corporate value in Spain

Chapter

Feb 2019

Agency Costs, Ownership, and Internal Governance Mechanisms: Evidence from Chinese Listed Companies

Article

Full-text available

Jan 2019

Ratnam Vijayakumaran

In recent years, there has been an increasing interest in assessing the effectiveness of corporate governance in China. This paper examines the impact of internal governance mechanisms such as ownership structure and board characteristics and debt financing on agency costs making use of a large panel of Chinese listed firms. We find that managerial ownership and debt financing work as effective corporate governance mechanisms for Chinese listed firms to mitigate agency conflicts and the resultant agency costs

Board Characteristics, Compliance, and Firm Performance: Empirical Findings from Colombia

Article

Full-text available

Jan 2019

Using data from a single database of Colombian firms, we confirmed an endogenous relationship between specific board characteristics, compliance with corporate governance guidelines, and firm performance. A board comprising experts without conflicts of interest is more likely to control ethical behavior, implement audit committees, review compliance with accepted accounting standards, and approve and control the firm’s strategic planning, all of which will lead to an improvement in firm results, and engagement and retention of higher quality board members. Conclusions have strong implications for public policy and managerial practice.

Effect of Board Size, Board Composition and Board Meetings on Financial Performance of Listed Consumer Goods in Nigeria

Article

Full-text available

May 2018

The central thrust of this study is to examine the effect of board size, board composition and board Meetings on the financial performance of listed consumer goods in Nigeria over the period of ten years from 2006 to 2015. The study uses expo factor research design and purposive sampling technique (filter) as research design and sampling technique. The population of the study is twenty (20) listed consumer goods companies in Nigeria and a sample size of ten (10) companies were studied. The data was analysed by means of descriptive statistics, Correlation and Regression analysis using STATA (version 11). The descriptive result reveals that return on assets has minimum and maximum values of -0.0400 and 0.4700 respectively and the mean and standard deviation of 0.1199 and 0.1038 respectively. The study made use of secondary data generated from annual report and account of the sampled companies through Nigeria Stock Exchange fact book. The findings include the following: Board size is negatively significant at 1% with T. Value of _2.70, Board composition is positively significant at 1% with T- Value of 2.15 and finally, Board meeting is negatively insignificant with T- Value of _1.45. This study concluded that smaller board size are more effective than larger board size, good proportion of board composition is a good factor to enhance ROA of listed consumer goods companies in Nigeria and frequent board meeting will have negative effect on the ROA of listed consumer goods companies in Nigeria because it will limits the chances for external directors to conduct a meaningful oversight over management. Hence the study recommends among others; That smaller board size should be used in listed consumer goods companies in Nigeria to enhance their ROA, the listed consumer goods companies should continue to maintain good proportion of independence directors. The listed consumer goods companies in Nigeria should discourage unnecessary board meetings to allow board of directors perform other oversight function on the management so as to enhance the ROA of listed consumer goods companies in Nigeria.

The Politician as a CEO, Corporate Governance and Firm Value

Article

Jan 2023

Longitudinal approach to the study of corporate governance code and earnings management relationship: the case of Saudi Arabia

Article

Jan 2022

Mohieddin Grada

Purpose This paper investigates whether the introduction of the 2006 corporate governance code and subsequent amendments constrain corporate earnings management (EM) practices amongst listed companies in Saudi Arabia. Design/methodology/approach Accounting and corporate governance (CG) data were collected from annual financial reports of a sample of 108 listed companies from 2007 to 2019. Absolute value of discretionary accruals was regressed against tested CG determinants provided in the CG code. The authors also employed other econometric models to check potential endogeneities. Findings The overall results provide evidence that the 2006/2018 Saudi Arabia corporate governance code (SACGC) does not deter EM practices in public companies. Practical implications Regulators and other stakeholders should make a deliberate effort to improve the Saudi CG environment by focussing on governance aspects such as board and ownership structures to ensure the independence of the board to effectively perform its statutory roles, as EM practices persist in the system. Originality/value This paper extends the literature on the effectiveness of CG, by providing evidence that CG code does not effectively constrain EM activities in settings where CG structures may exist, but greater importance is attached to informal relationships and other considerations than formal CG mechanisms, as these features usually work against the potentials of the principles of good CG as in the case of Saudi Arabia.

The relationship between managerial entrenchment and accounting conservatism

Article

Nov 2021
J Facil Manag

Purpose This study aims to assess the relationship between managerial entrenchment and accounting conservatism in Iran. Design/methodology/approach To test hypotheses, all listed companies on the Tehran Stock Exchange during 2013–2018 (six years) that qualified were selected. Given the defined limitations of the study, a total of 120 firms with 720 year-observations was selected. After collecting data and figures, they were analyzed using EViews software. Having presented the inferential model tests, the panel data with fixed effects model is chosen. Findings The study results indicate a positive and significant relationship between managerial entrenchment and unconditional conservatism presented in the income statement. Moreover, the authors find a meaningful relationship between managerial entrenchment and unconditional conservatism about the balance sheet. Practical implications Managers will be more aware of the positive consequences of employment optimal corporate governance such as conservative accounting. Such corporate governance is likely to serve their interest in the long run by providing positive signals to the equity owners and board of directors. Originality/value By assessing conservatism’s literature in Iran, we observe many studies on this concept. Still, no investigation is carried out on the relationship between conservatism in accounting and managerial entrenchment. The present study is innovative because it evaluates the relationship between managerial entrenchment and two types of conservatism, namely, balance sheet and income statement conservatism, which have never been investigated by prior studies, notably in emerging markets.

Board characteristics and financial performance: A comprehensive literature review

Article

Full-text available

Nov 2021

This paper reviews literature on corporate governance and firm performance published from 1998 to 2019 in a comprehensive manner. The board characteristics such as board size, meetings, composition, and CEO duality are the main discussion points. The findings show that most of the studies have used panel data and statistical tools such as random effects, multiple regression analysis, or instrumental variables approach, etc. The citation analysis revealed that the most cited studies are Eisenberg, Sundgren, and Wells (1998) and Jackling and Johl (2009) in international and Indian contexts respectively. This compilation of past studies will stimulate scholars to identify the research gap in this area and pursue further research

Board Characteristics and Firm Performance Evidence from Listed Companies in Bangladesh

Article

Full-text available

Mar 2016

This paper tries to explore a comprehensive set of board characteristics and investigates their impact on financial performance of listed banks in Bangladesh. Based on observations of 90 firm-years from all 30 listed banks for the year 2011-13, the research finds that, board size has significantly positive impact on ROA and ROE and board sub-committees have a significantly negative effect on ROE. However, there is no significant relationship between board composition in the form of representation of outside independent directors and firm performance. Similarly, gender diversity in the board has insignificant effect on the firm performance. Contrary to hypotheses, board activities (holding and attending board meetings), as well as board shareholding, have insignificant influence on bank performance in Bangladesh. Keywords: Corporate governance, Board of Directors, Firm Performance, Banks, Bangladesh.

Gender diversity inclusive board structure and firm performance: Evidence from West Africa

Article

Sep 2021

We analyze the relationship of board structure features with non‐financial firm's performance among West African listed companies. The data was collected though content analysis of annual reports and audited financial statement of 109 West African listed companies over 2002–2017 by utilized three financial performance proxies, namely return on assets, return on equity, and Tobin Q. We employed several model specification tests and regression methods including pooled OLS, fixed effects and GMM two stage models. The results indicate statistically positive relationship between board size and firm performance but only significant with Tobin's Q and positive significant effect of women directorship and women chief executive officer on firm performance. Independent director has statistically positive significant effect on firm financial performance. Paradoxically, women independent directors has negative significant impact on financial performance. Findings imply that corporations should have a board structure including women executives’ directors, woman CEO and men independent directors as a way to enhance firm's performance. This paper contributes to developing countries scant literature on determinants financial performance and corporate governance practices by provides evidence on why and how corporation should have independent directors and gender diversity inclusive board structure to enhance firm's performance ones in developing countries.

The role of corporate governance in attracting foreign investment: An empirical investigation of Saudi‐listed firms in light of vision 2030

Article

Jan 2021

Hend Alregab

Following the introduction of the Saudi Vision 2030, diverse developments have been considered concerning corporate governance as an effort to open Saudi Arabia's economy to the world. Identifying the significance of attracting foreign investment is considered an approach to accomplish one of the vision's targets. The objective of this study is to investigate the impact of improved corporate governance policies on the magnitude of foreign investment. Regression analysis was employed using the data of 153 listed companies in the Saudi Stock Exchange (Tadawul) from 2015 to 2019 to examine the effect of three corporate governance indicators on foreign investment. Specifically, ownership structure was represented by institutional ownership, ownership concentration and managerial ownership. Board composition was identified by board size and independence. Executive pay was measured by the total top executive pay and the presence of long‐term incentive plans (LTIPs). Findings indicated that foreign investment is positively associated with ownership concentration, board independence and the presence of LTIPs in compensation packages. A negative and significant association was found with institutional ownership and managerial ownership.

The UK Corporate Governance Code Principle of ‘Comply or Explain’: Understanding Code Compliance as ‘Subjection’

Article

Full-text available

Jan 2021

The focus of this paper is on UK Code compliance and the contests and confusions that have surrounded its principle of ‘comply or explain’. In contrast to many agency theory‐informed studies, the paper suggests that visible compliance with the Code cannot itself be taken as a reliable proxy for board effectiveness. Instead, drawing upon Foucault's account of governance as subjection, we argue that, as a form of board accountability, visible compliance can only support the Code's primary objective of establishing norms which shape the conduct of directors within boards. The contests and confusions as to the meaning of comply or explain are then explored in terms of the challenge regulators have faced, throughout the subsequent life of the Code, in respecting the freedom of action of directors, whilst nevertheless seeking to influence how this is exercised. The paper first explores three key moments in the evolution of the UK Code: the initial Cadbury committee two‐page ‘Code of Best Practice’ in 1992, the more prescriptive 2003 post‐Enron changes to the UK Combined Code following the Higgs review, and the retreat from such prescription in the 2010 changes to the Code. This is complemented by drawing on qualitative empirical research to describe three very different ‘subject positions’—refusal, cynical distance, and willing embrace—which directors have come to adopt in response to the Code. The paper concludes by pointing to the very different consequences for actual board effectiveness implied by these contrasting, but largely invisible, responses to the Code.

The Effects of Corporate Governance (CG) on Saudi Arabian Companies' Earnings Quality

Chapter

Jan 2021

Zahra Al Nasser

High earnings quality (EQ) is one of the company's pillars of long-term success in building investor confidence. This study investigates whether or not corporate governance (CG) affects the EQ of non-financial companies listed on the Saudi Arabian Stock Exchange known as Tadawul. This research study uses data from a sample of 482 firm-year observations of these companies in the period from 2009 to 2013. The author adopts the Generalized Method of Moments (GMM) regression model. This research study contributes to the current literature by providing new evidence of the effect of CG on the EQ of the Saudi Arabian non-financial companies listed on the Tadawul. Specifically, not all CG attributes affect each company's EQ in the same way. This study's findings show that important CG attributes, which enhance the company's EQ, are the number of the company's independent directors, the separation of the dual role between the company's CEO and chairperson, and the financial or accounting expertise of the members of the company's audit committee members.

Corporate governance and financial performance: evidence from Romania

Article

Oct 2021
J Econ Stud

Purpose The purpose of this research is to evaluate the impact of adopting the principles of corporate governance on the financial performance of companies listed on the Bucharest Stock Exchange (BSE). To assess the implementation of corporate governance principles, the authors built an index based on the principles specified in the BSE Corporate Governance Code (CGC). Design/methodology/approach An econometric analysis was conducted to estimate the impact that the authors’ corporate governance indicator had on financial performance, measured successively through Tobin's Q, return on equity (ROE), economic value added (EVA) and total shareholder return (TSR). Findings Following the regression model, the authors noticed the absence of a significant impact of corporate governance practices on performance measured by ROE, EVA and TSR but instead, a significant and positive relationship for Tobin's Q rate was found. Research limitations/implications Due to the lack of data before the implementation of the BSE Code of Corporate Governance, the research period is limited to 2010–2015, but the authors’ future studies will try to extend the research period. Originality/value Although numerous studies have been conducted to analyze the empirical relationship between corporate governance and financial performance, no conclusive results have been obtained. The diversity of these findings can refer to methods used in the construction of a corporate governance measure as well as to the accuracy of financial reporting.

Onvoldoende uitleg bij toepassing van het ‘comply or explain’- principe in Europa

Article

Full-text available

May 2013

In dit artikel worden de mate en kwaliteit van de toepassing van het ‘comply or explain’-principe voor beursgenoteerde ondernemingen in Nederland, België, Duitsland, Italië en het Verenigd Koninkrijk onderzocht. Dit is de eerste studie naar de toepassing van het principe waarin simultaan meerdere landen voor opeenvolgende jaren met één en dezelfde meetmethode worden onderzocht. De resultaten laten zien dat ondernemingsgrootte en de tijd van positieve invloed zijn op de mate en kwaliteit van naleving. Op de vraag of het ‘comply or explain’-principe juridisch ingebed dient te worden in de wet of in beursregels kan aan de hand van dit onderzoek geen eenduidig antwoord worden gegeven en dit dient verder te worden onderzocht in samenhang met de culturele kenmerken en het rechtsstelsel van een land. Hoewel de mate van codenaleving hoog is, laat de kwaliteit van de uitleg bij niet-naleving van codebepalingen te wensen over. Verdere finetuning van het ‘comply or explain’-principe is derhalve nodig voor een effectieve en juiste toepassing van het principe.

Managerial Ownership and Financial Performance of Listed Manufacturing Firms in Nigeria

Article

Full-text available

Oct 2018

The Board of Directors in Bank Governance in China

Chapter

Jan 2019

Weikang Zou

Putting together the puzzles from all the previous chapters, this chapter starts to explore and explain how the discourses of legitimacy and paradigm, as discussed in Chaps. 3, 4, 5, and 6, are manifested in the specific governance structure in Chinese banks. Reflecting on the production of the board of director in generic corporations then banking organizations, the chapter studies specifically the organization and behavior of the board of directors in Chinese banks, which embraces the orientation of the bank board, its composition, the board size and its independence. Illustrating the hybrid nature of the paradigm discourses of the enhanced shareholder primacy and diversified stakeholder theory and relevant legitimacy discourses, the board of directors in Chinese banks are observed to be heavily guided toward sustainable profitability to the shareholders, active support for economic development, and balance of interests of various stakeholders. Similar representation of discourses of legitimacy and paradigm is demonstrated in the board composition, the board size, and the board independence in Chinese banking industry.

La valutazione del CdA in contesti ad elevata concentrazione proprietaria: mero conformismo o reale strumento di valutazione?

Article

Mar 2018

Remuneration Committees and Corporate Governance

Article

Full-text available

Jan 1993

Using a sample of 220 large publicly held British companies, this study examines the role of the remuneration committee in British boardrooms. Some 30 per cent of the sample reported having such a committee. A reported remuneration committee seemed to be associated with higher levels of pay and made no positive impact on the incentive structure of pay.

CEO Duality, Firm Performance and Corporate Governance: What's the Fuss?

Article

Full-text available

Jan 1996
STRATEGIC MANAGE J

Rising shareholder activism following poor corporate performance and a subsequent drop in shareholder value at many major U.S. corporations has rekindled interest in duality and corporate governance. Despite limited empirical evidence, duality (chairman of the board and CEO are the same individual) has been blamed, in many cases, for the poor performance and failure of firms to adapt to a changing environment. In examining the relationship between duality and firm performance, this study considers the announcement effects of changes in duality status, accounting measures of operating performance for firms that have changed their duality structure, and long-term measures of performance for firms that have had a consistent history of a duality structure. Our results suggest that: (1) the market is indifferent to changes in a firm's duality status; (2) there is little evidence of operating performance changes around changes in duality status; and (3) there is only weak evidence that duality status affects long-term performance, after controlling for other factors that might impact that performance.

Higher Market Valuation for Firms With a Small Board of Directors

Article

Full-text available

Feb 1996
J FINANC ECON

David Yermack

I present evidence consistent with theories that small boards of directors are more effective. Using Tobin's Q as an approximation of market valuation, I find an inverse association between board size and firm value in a sample of 452 large U.S. industrial corporations between 1984 and 1991. The result is robust to numerous controls for company size, industry membership, inside stock ownership, growth opportunities, and alternative corporate governance structures. Companies with small boards also exhibit more favorable values for financial ratios, and provide stronger CEO performance incentives from compensation and the threat of dismissal.

Survivorship bias in performance studies

Article

Full-text available

Jan 1992

Recent evidence suggests that past mutual fund performance predicts future performance. We analyze the relationship between volatility and returns in a sample that is truncated by survivorship and show that this relationship gives rise to the appearance of predictability. We present some numerical examples to show that this effect can be strong enough to account for the strength of the evidence favoring return predictability.

Alternative Mechanisms for Corporate Control

Article

Full-text available

Feb 1989

We examine performance and management characteristics of Fortune 500 firms experiencing one of three types of control change: internally precipitated management turnover, hostile takeover, and friendly takeover. We find that firms experiencing internally precipitated management turnover perform poorly relative to other firms in their industries, but are not concentrated in poorly performing industries. In contrast, targets of hostile takeovers are concentrated in troubled industries. There is also weaker evidence that hostile takeover targets underperform their industry peers. We interpret this evidence as consistent with the idea that the board of directors is capable of firing managers whose leadership leads to poor performance relative to industry, but that an external challenge in the form of a hostile takeover is often required when the whole industry is in decline. The evidence also indicates that firms run by a member of the founding family are less likely to experience either internally precipitated top management turnover or a hostile takeover. On the other hand, firms whose top management team is dominated by a single, relatively young top executive, while lacking in internal discipline, are more likely to experience a hostile takeover.

A Review of Compliance with Cadbury

Article

Mar 1997

To what extent have companies implemented the recommendations of the Cadbury Committee on the financial aspects of corporate governance?

MANAGEMENT OWNERSHIP AND MARKET VALUATION* An Em~k~d Amdy~s

Article

CEO duality and organizational performance: A longitudinal analysis

Article

Feb 1991
STRATEGIC MANAGE J

All public corporations must make a choice regarding board leadership structure. Advocates of more effective corporate governance argue for independent board leadership; yet many firms choose instead to allow the CEO to serve as board chairperson (CEO duality). This study examines the differential financial implications of these choices for 141 corporations over a 6-year time period. Results indicate significant differences in performance between the two groups along a number of performance measures; more specifically, firms opting for independent leadership consistently outperformed those relying upon CEO duality.

Firm Performance and Board Composition: Some New Evidence

Article

Jul 1994
Manag Decis Econ

We investigate the effect of board composition on overall corporate performance while controlling for managerial ownership and other key variables. We recognize that both managerial ownership and board composition may be endogenous to performance, but our work differs from previous in two important respects. First, we measure performance using the market value to book value ratio of common stock equity rather than the more commonly used Tobin's q. Second, recognizing that overall estimates from the IV approach depend greatly on the choice of instruments, we perform sensitivity analysis by using a variety of instruments to proxy for board composition and managerial ownership. Both our OLS and IV estimates indicate a significant curvilinear relation between board composition and performance. However, we find that moderate differences in first-stage regressions, resulting in small changes to first-stage R2s, lead to widely differing overall results. Our results suggest that findings of studies using IV and similar techniques (e.g. two- and three-stage least squares) must be interpreted cautiously.

Outside directors, board independence, and shareholder wealth

Article

Aug 1990
J FINANC ECON

Management plays a dominant role in selecting outside directors, inviting skepticism about outsiders' ability to make independent judgments on firm performance. Our examination of wealth effects surrounding outside director appointments finds significantly positive share-price reactions. We find no clear evidence that outside directors of any particular occupation are more or less valuable than others. The results are consistent with the hypothesis that outside directors are chosen in the interest of shareholders.

Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure

Article

Jul 1976

This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.

Additional Evidence on Equity Ownership and Corporate Value

Article

Oct 1990
J FINANC ECON

We investigate the relation between Tobin's Q and the structure of equity ownership for a sample of 1,173 firms for 1976 and 1,093 firms for 1986. We find a significant curvilinear relation between Q and the fraction of common stock owned by corporate insiders. The curve slopes upward until insider ownership reaches approximately 40% to 50% and then slopes slightly downward. We also find a significant positive relation between Q and the fraction of shares owned by institutional investors. The results are consistent with the hypothesis that corporate value is a function of the structure of equity ownership.

Outside Directors and CEO Turnover

Article

Mar 1988
J FINANC ECON

Michael S. Weisbach

This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards. This result does not appear to be a function of ownership effects, size effects, or industry effects. Unexpected stock returns on days when resignations are announced are consistent with the view that directors increase firm value by removing bad management.

A Heteroskedasticity-Consistent Covariance Matrix and A Direct Test for Heterskedasticity

Article

Apr 2001

Halbert L. Jr. White

This paper presents a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic. This estimator does not depend on a formal model of the structure of the heteroskedasticity. By comparing the elements of the new estimator to those of the usual covariance estimator, one obtains a direct test for heteroskedasticity, since in the absence of heteroskedasticity, the two estimators will be approximately equal, but will generally diverge otherwise. The test has an appealing least squares interpretation.

Large Shareholder and Corporate Control

Article

Feb 1986

In a corporation with many small owners, it may not pay any one of them to monitor the performance of the management. We explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem. The model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?

The Structure of Ownership

Article

Feb 1985

Agency Problems and the Theory of Firm

Article

Feb 1980

Eugene F. Fama Sr

Economists have long been concerned with the incentive problems that arise when decision making in a firm is the province of managers who are not the firm's security holders. One outcome has been the development of “behavioral” and “managerial” theories of the firm which reject the classical model of an entrepreneur, or owner-manager, who single-mindedly operates the firm to maximize profits, in favor of theories that focus more on the motivations of a manager who controls but does not own and who has little resemblance to the classical “economic man.” Examples of this approach are Baumol (1959), Simon (1959), Cyert and March (1963), and Williamson (1964b). More recently the literature has moved toward theories that reject the classical model of the firm but assume classical forms of economic behavior on the part of agents within the firm. The firm is viewed as a set of contracts among factors of production, with each factor motivated by its self-interest. Because of its emphasis on the importance of rights in the organization established by contracts, this literature is characterized under the rubric “property rights.” Alchian and Demsetz (1972) and Jensen and Meckling (1976b) are the best examples. The antecedents of their work are in Coase (1937, 1960). The striking insight of Alchian and Demsetz (1972) and Jensen and Meckling (1976b) is in viewing the firm as a set of contracts among factors of production.

Firm Performance and Board Commitee Structure

Article

Feb 1998

April Klein

This article demonstrates a linkage between firm performance and board composition by examining the committee structure of boards and the directors' roles within these committees. Consistent with previous studies, I find little association between firm performance and overall board composition. However, by going into the inner workings of the board via board committee composition, I am able to find significant ties between firm performance and how boards are structured. First, a positive relation is found between the percentage of inside directors on finance and investment committees and accounting and stock market performance measures. Next, firms significantly increasing inside director representation on these two committees experience significantly higher contemporaneous stock returns and return on investments than firms decreasing the percentage of inside directors on these committees. These findings are consistent with Fama and Jensen's assertion that inside directors provide valuable information to boards about the firms' long-term investment decisions. Copyright 1998 by the University of Chicago.

The Determinants of Board Composition

Article

Feb 1988
RAND J ECON

We identify factors that lead to changes among corporate directors. We hypothesize that the CEO succession process and firm performance will affect board composition. Our findings are consistent with both hypotheses. When their CEO nears retirement, firms tend to add inside directors (who may be possible candidates to be the next CEO) Just after a CEO change, inside directors with short tenures appear more likely to leave the board (they, perhaps, being the losing candidates). We also find that inside directors are more likely to leave the board and outside directors more likely to join after a firm performs poorly and when a firm leaves a product market.

Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition

Article

Feb 1985

Ownership Structure, Control Type Classifications and the Performance of Large British Companies

Article

Nov 1991

Ownership structure among 470 U.K. listed companies is described by concentration indices and by "control type," the latter defined using both a fixed percentage shareholding and the "degree of control." The authors also test for possible controlling coalitions among groups of shareholders. Control-type effects on performance are tested using reduced-form equations for valuation ratio, profit margin, return on capital, growth rates, and directors' pay. There is no clear evidence to support managerial theories. Ownership structure is analyzed with the results that greater size and capital cost (beta) imply greater shareholding dispersion. A probit model of control type gives weak results. Copyright 1991 by Royal Economic Society.

CEO Involvement in the Selection of New Board Members: An Empirical Analysis

Article

Feb 1999

We study whether CEO involvement in the selection of new directors influences the nature of appointments to the board. When the CEO serves on the nominating committee or no nominating committee exists, firms appoint fewer independent outside directors and more gray outsiders with conflicts of interest. Stock price reactions to independent director appointments are significantly lower when the CEO is involved in director selection. Our evidence may illuminate a mechanism used by CEOs to reduce pressure from active monitoring, and we find a recent trend of companies removing CEOs from involvement in director selection. Copyright The American Finance Association 1999.

Modeling Takeover Likelihood

Article

Oct 1997
J BUS FINAN ACCOUNT

Ronan Powell

This paper employs a multinomial logit model in an attempt to better understand the motives behind takeovers. The results from the multinomial logit models show that the characteristics of hostile and friendly targets differ significantly and that these differences also vary depending on the time period under investigation. The results give some support to the disciplining role of the hostile takeover. Furthermore, conclusions based on a simple binomial logit model are likely to be misleading and result in incorrect inferences regarding the characteristics of firms subject to takeover. Copyright Blackwell Publishers Ltd 1997.

Corporate Governance Changes in UK Companies Between 1988 and 1993

Article

Feb 1994
CORP GOV

Martin J. Conyon

In the UK, recently, there has been an intense debate about what constitutes good corporate governance. This paper presents the results of a retrospective postal survey into the nature of corporate governance structures in UK companies. The objective of this paper is to isolate the extent to which key corporate governance innovations are being adopted in the boardrooms of UK companies. The main findings can be summarised as follows: (i) 77 per cent of the sample of quoted companies separated the role of chief executive officer and chairman in 1993 compared to 57 per cent in 1988; (ii) 94 per cent of quoted companies operated remuneration committees in 1993 as compared to 54 per cent in 1988; (iii) the incidence of audit committees among companies has doubled between 1988 and 1993 whilst the incidence of nomination committees has trebled; (iv) in apparent contradiction of the Institutional Shareholders’ Committee recommendation, of those companies that operated remuneration committees in 1993, 40 per cent had the top executive director as a committee member. Overall the picture that emerges is of radical change in governance innovation since the late 1980s.

Separation of Ownership and Control

Article

Jun 1998

This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of "ownership" and "control." Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions. Journal of Law and Economics, Vol. XXVI, June 1983. Separation of Ownership and Control * Eugene F. Fama and Michael C. Jensen Journal of...

Board Independence and Long Term Firm Performance, University of Colorado at Boulder Working Paper Outside Directors and CEO Selection

Jan 1996
337-355

S Bhagat
B Black
K Borokovich
R Parrino
T Trapani

Bhagat, S. and B. Black: 1998, Board Independence and Long Term Firm Performance, University of Colorado at Boulder Working Paper. Borokovich, K., R. Parrino and T. Trapani: 1996, " Outside Directors and CEO Selection ", Journal of Financial and Quantitative Analysis 31: 337–355.

The Performance-Governance Relationship: The Effects of Cadbury Compliance on UK Quoted Companies

Abstract

No full-text available

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