Article

When Does Ownership Matter? Board Characteristics and Behavior

Strategic Management Journal

March 2012
34(7)

DOI:10.2139/ssrn.1774684

Authors:

Kurt A. Desender

University Carlos III de Madrid

Rafel Crespí Cladera

University of the Balearic Islands

Miguel A Garcia-Cestona

Autonomous University of Barcelona

We extend agency theory with the notion that boards have distinct incentives and abilities to monitor management and develop a contingency approach to explain how firm ownership influences the monitoring function of the board — measured as the magnitude of external audit fees contracted by the board. Analyzing Continental European companies, our results demonstrate that while audit services and board independence are complementary when ownership is dispersed, this is not the case when ownership is concentrated. This suggests that ownership concentration and board composition become substitutes in terms of monitoring management. Additional analysis shows that the relationship between board composition and external audit fees is also contingent upon the identity of the controlling shareholder. We uncover that the influence of board characteristics on audit fees is larger for family and non-financial controlled firms than for bank controlled firms, relative to firms with dispersed ownership. In total, we find that board monitoring is contingent on the firm’s ownership structure, which demonstrates that board strategic behavior is contextually dependent. We argue that theory and empirical research in corporate governance should progress to a more context dependent analysis, which, in turn, will prove useful for practitioners and policy makers.

Configuração do controle acionário, governança corporativa e valor da empresa: uma análise das empresas brasileiras

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Dec 2023

This work aims to analyze the effect of the shareholding control configuration on the effectiveness of the corporate governance system. Using regression analysis, the relationships between the type of shareholding control, the level of adoption of corporate governance practices, and firm value were explored using a sample of 160 Brazilian companies. The results indicate that a better structured corporate governance system has a positive effect on firm value, which proves its effectiveness. Furthermore, this relationship is positively moderated by majority control, and negatively by shared control. These findings indicate that shareholding control is a contingent factor on the effectiveness of adopting governance practices by firms. It is worth mentioning that firms with dispersed control exhibit greater adherence to corporate governance practices, majority control depreciates firm value, while shared and dispersed control create value. This paper contributes a categorization for shareholding control configuration and provides evidence of its key role on firm value.

Teoria da Agência: um levantamento sobre discussões contemporâneas

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O presente artigo tem como objetivo identificar discussões contemporâneas e gaps teóricos na perspectiva contratual da Teoria da Agência. Para tal finalidade, é empregada uma revisão sistemática sobre artigos publicados e revisados por pares, entre os anos 2008 a 2017 que utilizaram a Teoria da Agência e o estudo sobre contratos. Os resultados apresentam de forma sistematizada: as pesquisas; os autores: a data de publicação; um resumo dos trabalhos; o objeto estudado; o tipo da pesquisa; a técnica de análise utilizada; os achados; e as lacunas que precisam de investigação. O trabalho fornece aos pesquisadores um catálogo das pesquisas sobre a temática no período analisado.

L’institutionnalisation des codes de gouvernance en France et leur impact sur la gestion des résultats et la performance financière

Thesis

Dec 2016

Adam Elage

Two decades after the publication of the first code of governance (CG) in France (report Viénot 1), public debate on the effectiveness and the content of CG remains a hot topic. The impact of the CG and the importance of the proposed recommendations by the publication of CG are widely treated internationally but empirical studies addressing the French context, does not provide enough answers to several fundamental questions related to the institutionalization of CG in France. These questions include the improvement of compliance with the Code over time, the impact of applying the comply or explain (AOE) principle established by DDAC low in 2008 on this compliance and the effect of the compliance with the code on managerial practices.Thus, in view to complete this gap in the literature and to participate in enriching the debate concerning the effectiveness of CG in the French context, we conducted this work which consists of three trials covering the 2006-2013 period and covering companies listed in the SBF 120. The main goals of our research are to study the evolution and the determinants of compliance with CG as well as the impact of compliance on two fundamental objectives of the CG development (quality of financial informations measured by the earnings management and financial performance).The results of the study show that the SBF 120 listed companies have strengthened their compliance with the code over time, particularly following the enforcement of DDAC low. In addition, our studies show many benefits of institutionalizing the CG in terms of quality of financial information measured by the earnings management and and economic performance.However, the CG institutionalization strategy in France which is supported by several influential economic agents as the AMF, the AFEP and MEDEF does not seem to successfully achieve the valorisation target by investors. In fact, inefficiency of some CG recommendations such as recommendations concerning executive compensation is disclosed in our study. Finally, these results led us to propose several ways to improve the content and the effectiveness of the French CG.

Corporate entrepreneurship in the public sector: exploring the peculiarities of public enterprises

Thesis

Oct 2021

Timo Tremml

Entrepreneurship is predominantly treated as a private-sector phenomenon and consequently its increasing importance in the public sector goes largely unremarked. That impedes the research field of entrepreneurship being capable of spanning multiple sectors. Accordingly, recent research calls for the study of corporate entrepreneurship (CE) as it manifests in the public sector where it can be labeled public entrepreneurship (PE). This dissertation considers government an essential entrepreneurial actor and is led by the central research question: What are the peculiarities of the public sector and how do they impact public enterprises entrepreneurial orientation (EO)? Accordingly, this dissertation includes three studies focusing on public enterprises. Two of the studies set the scope of this thesis by investigating a specific type of organization in a specific contextGerman majority-government-owned energy suppliers. These enterprises operate in a liberalized market experiencing environmental uncertainties like competitiveness and business transformation. The aims and results of the studies included in this dissertation can be summarized as follows: The systematic literature review illuminates the stimuli of and barriers to entrepreneurial activities in public enterprises and the potential outcomes of such activities discussed so far. The review reveals that research on EO has tended to focus on the private sector and consequently that barriers to and outcomes of entrepreneurial activities in the public sector remain under-researched. Building on these findings, the qualitative study focuses on the interrelated barriers affecting entrepreneurship in public enterprises and the outcomes of entrepreneurial activities being inhibited. The study adopts an explorative comparative causal mapping approach to address the above-mentioned research goal and the lack of clarity around how barriers identified in the public sphere are interrelated. Furthermore, the study bases its investigation on the different business segments of sales (competitive market) and the distribution grid (natural monopoly) to account for recent calls for fine-grained research on PE. Results were compared with prior findings in the public and private sector. That comparison indicates that the barriers revealed align with aspects discussed in prior research findings relating to both sectors. Examples include barriers associated with the external environment such as legal constraints and barriers originating from within the organization such as employee behavior linked to a value system that hampers entrepreneurial action. However, the most important finding is that a public enterprises supervisory board can hinder its progress, a finding running counter to those of previous private-sector research and one that underscores the widespread prejudice that the involvement of a public shareholder and its nominated board of directors has a negative effect on EO. The third study is quantitative (data collection via a questionnaire) and builds on both its predecessors to examine the little understood topic of board behavior and public enterprises social orientation as predictors of EO. The studys results indicate that social orientation represses EO, whereas board strategy control (BSC) does not seem to predict EO. Regarding BSC, we find that the local government owners in our sample are less involved in BSC. The third study also examines board networking and finds its relationship with EO depends on the ownership structure of the public-sector organization. An important finding is that minority shareholders, such as majority privately-owned enterprises and hub firms, repress EO when engaging in board networking. In summary, this doctoral thesis contributes to the under-researched topic of CE in the public sector. It investigates the peculiarities of this sector by focusing on the supervisory board and social oriented activities and their impact on the enterprises EO in the quantitative study. The thesis addresses institutional questions regarding ownership and the last study in particular contributes to expanding resource dependence theory, and invites a nuanced perspective: The original perspective suggests that interorganizational arrangements like interfirm network ties and equity holdings reduce external resource dependency and consequently improve firm performance. The findings within this thesis expose resource delivery to potential contrary effects to extend the understanding of interorganizational action with important implications for practice.

Audit Committee Characteristics, Family Ownership, and Firm Performance: Evidence from Jordan

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This study investigates impacts of the association between characteristics of an audit committee and firm performance. The manufacturing firms listed on Amman Stock Exchange (ASE) are selected as a study sample consisting of 37 companies for the period 2013-2017. An index containing four characteristics is established to measure the effectiveness of an audit committee, namely: independence of an audit committee, size, meetings, and financial expertise. From the findings of this study, there is a significant positive association between the audit committee characteristics and firm performance. In addition, the results document that the association between the audit committee effectiveness and firm performance becomes strong when there is an interaction with family ownership. This indicates that an increase in the effectiveness of the audit committee leads to improved firm performance, especially in the case of family controlled firms. The findings of this study are useful to all regulators and stakeholders as they provide them with a significant premise about the type of controlling shareholders and the internal mechanisms of corporate governance that will protect their interests.

Avoiding relapses after crises: Exploring the influence of firm investors’ characteristics on organizational resilience

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Many firms may successfully navigate an organizational crisis, but may find themselves entangled in another soon after. Building on a resource-dependence perspective, this study evaluates how certain investor characteristics foster organizational resilience during a crisis by preventing a relapse following recovery. Drawing on data from 2014 to 2019, we analyzed 359 firms that faced a crisis in 2015, as indicated by their Altman Z-score values. Our findings reveal that diversity and patience of investors prevent firms from relapsing into upcoming crises; however, the probability of relapse increases when concentrated investors boost the firm’s capital during the in-crisis period. We bridge the gap between the resource-dependence theory and literature on organizational resilience and contribute by extending previous analyses on the relevance of investors to recover from a crisis to identify how in-crisis investors’ features also state the foundations to avoid future relapses. JEL CLASSIFICATION: D74; D81; G01; G32; P45

Board gender diversity and ownership structure: Are they substitutes or complementary? Evidence from Palestine

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Yousef Hassan

This study investigates the interaction between ownership structures and female representation on the boards of directors in firms in Palestine, an emerging country with a very unstable political and economic setting. Using substitution and complementary hypotheses, the researchers examined a sample of 252 firm-year observations listed on the Palestine Exchange (PEX) for the period from 2013 to 2021. Both the baseline and robustness test findings show that the ownership structure appears to be inversely associated with board gender diversity (BGD), lending support to the hypothesis that gender diversity and ownership structure can be substituted for one another. These findings support the substitution hypothesis that when a small number of investors own a substantial proportion of shares in firms, allowing them to directly or indirectly exercise control and provide oversight of these firms’ management teams, it will be less necessary to rely on the monitoring role of the board (including women representation) to force managers to comply with their mandates, as those few blockholders can do so on their own.

TRANSFORMACIÓN INDUSTRIAL, SOSTENIBILIDAD MEDIOAMBIENTAL Y GOBIERNO CORPORATIVO: EL PAPEL DE LOS CONSEJEROS INDEPENDIENTES

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El consenso científico señala a la actividad humana como principal responsable del aumento de las temperaturas medias del planeta y de la creciente degradación medioambiental que está detrás de los recurrentes fenómenos meteorológicos extremos que generan un impacto devastador en la vida de las personas y en la economía en su conjunto (Dormido, Garrido, L’Hotellerie- Fallois y Santillán, 2022).

Mecanismos de governança e valor de mercado das concessionárias De rodovias listadas na B3 (BM&FBOVESPA)

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Jul 2023

Objetivo do estudo: Esse estudo visa, integrar a teoria da agência, os mecanismos de governança corporativa e as características do Programa de Exploração de Rodovias (PER) administrado pela ANTT (Agencia Nacional de Transporte Terrestre), partir da análise das características dos mecanismos de governança das 33 concessionárias de rodovias listadas na B3 (BMF&Bovespa) no período de 2010 a 2022, e a influência no seu valor de mercado. Metodologia/abordagem: Em termos metodológicos, a pesquisa teve caráter documental, utilizando como base de pesquisa os relatórios da B3 (BMF&Bovespa), CVM que operam tanto na Bolsa de Valores do Brasil quanto nos Estados Unidos. A pesquisa utilizou o modelo de regressão de dados em painel, com efeitos fixos e aleatórios. Originalidade/Relevância: Ao relacionar as características dos mecanismos de governança e o valor de mercado das concessionárias brasileiras, os resultados foram significantes para as variáveis: a presença de investidores estrangeiros, o que confirma a teoria de que a presença de estrangeiro como acionista influencia positivamente o valor de mercado das empresas reguladas; os membros independentes do conselho de administração, possui efeito positivo na gestão e maximização de valor para os acionistas e, a fiscalização efetuada pela agência reguladora como processos do sistema regulatório que afeta positivamente o controle e o desenvolvimento de novos regulamentos, destinados a reduzir benefícios do acionista controlador e conflitos na gestão. Principais resultados: A Governança Corporativa vem ganhando destaque e se desenvolvendo nos últimos anos no meio empresarial, especialmente a partir do ano de 2002, após os escândalos de fraudes envolvendo grandes empresas norte-americanas, quando o assunto passou a ser mais valorizado e de maior exigência dentro das organizações. Foram operacionalizados indicadores que trazem um capital de investidores estrangeiros atrás de processo de concessão de rodovias, as empresas já estão cumprindo política internacionais e as implicadas legais exigidas pela B3, CVM, ANTT pelos órgãos nacionais.

Corporate governance and cost of equity: the moderating role of ownership concentration levels

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Purpose The study analyzes the influence of corporate governance and ownership concentration levels on the cost of equity. Further, the authors extend the literature by investigating the moderating effect of ownership concentration levels (i.e. at 5%, 10% and 20%) on the relationship between corporate governance and the cost of equity. Design/methodology/approach The study applies several robust panel regression techniques to a sample of 114 active non-financial companies listed on the Pakistan Stock Exchange from 2011 to 2016. Corporate governance was measured through a unique index comprising 30 governance attributes. The cost of equity was measured through the capital asset pricing model. Further, the authors construct three variables for ownership concentration levels, i.e. at 5%, 10% and 20%. To address the endogeneity problem, the one-lagged variable model and GMM approaches were also applied. Findings The results indicate that better corporate governance reduces the cost of equity, while ownership concentration at high thresholds would increase the cost of equity. Further, the authors find that ownership concentration at the 20% threshold moderates the relationship between corporate governance and the cost of equity. Thus, the authors argue that firms can minimize the risk faced by shareholders by implementing substantive corporate governance mechanisms. In addition, effective corporate governance mechanisms at high ownership concentration levels are imperative for managing the cost of equity. Originality/value The study reports novel evidence that ownership concentration at a high threshold moderates the effect of corporate governance on the cost of equity.

Firms’ political connections and performance in Brazil and Canada: an analysis of the effect of country institutional factors

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J Manag Govern

This study examines the link between the political connections and financial performance of companies in Brazil and Canada, taking into account the moderating role of their country institutional factors. The authors use a comparative analysis of the largest listed companies in the two countries between 2010 and 2017 inclusive. There were four main results: (a) no significant difference was noted in the number of politically connected firms, although Brazilian companies were more politically connected on average than Canadian companies; a significant difference was noted between Brazil and Canada in terms of the number of politically connected directors and executive officers; (b) a significant and positive link emerged in both countries between political connections and firm performance, as measured by ROIC and ROA; (c) distinguishing between the political connections of directors and those of officers, a more significant positive association with performance was noticed in the latter; (d) most important, a clear and significant moderating role played by their country institutional factors was not apparent in the relationship between firms’ political connections and performance. These latter results are mainly due to the lack of significant difference between the two countries in the number of politically connected firms. Contrary to expectations (and those of previous studies examining multicountry samples), the same effects from corporate political connections were shown in both countries. The study makes two important contributions. First, political connections seem to have become stronger than governance and institutional mechanisms, when it comes to controlling the behaviour of big corporations. Political connections have become so important that they influence the firm’s management structure, whatever the institutional context; they seem to transcend governance mechanisms. Second, this study is among the first to demonstrate the need for investigating political connections at different firm levels; it shows the specific effect of political connections through executive officers rather than only through boards of directors, as is usually done.

Control-Ownership Wedge and Industry Specialist Auditor

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This study extends agency theory by explaining the client's understanding of audit quality. This study contributes to the audit literature by examining the effect of wedge control-ownership on industry specialist auditors that have not been researched in Turkey. The interests of minority and controlling shareholders are not completely compatible. The research analysis method used a logistic regression model, finding that firms that practice a larger difference between control rights and cash flow rights tend to prefer high audit quality measures by industry specialist auditors. This study encourages regulators to improve law enforcement to enhance the role of corporate governance in Turkey to address the features of ownership-control firms and offer a suitable environment for investment and minority shareholders.

Does CEO duality affect board independence? Moderating impact of founder ownership and family blockholding

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This study examines the impact of CEO duality on board independence and extends the knowledge by exploring whether the type of firm, the presence of family blockholding, or concentrated founder ownership moderates this impact. Our statistical results show that CEO duality improves board independence. The empirical results support the theory of reputation and show that family-owned business group firms encourage board independence if firms have a duality leadership structure compared with non-family business groups, stand-alone, state-owned, and foreign-owned firms. The entrenchment effect of controlling shareholding on board independence overcomes the alignment effect of CEO duality and the results are significant for firms with low information costs and high level of monitoring.

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This study investigates how carbon emissions moderate the relationship between board characteristics and cost of debt in Indonesia's two-tier corporate governance system. A total of 612 firm-year observations were collected from 204 non-financial companies that were incorporated in the Indonesia Stock Exchange (IDX) from the year 2020 to 2022. Using Moderated Regression Analysis (MRA), the study demonstrates that the cost of debt is unrelated to the number of women on the board and the independence of commissioners. However, this finding indicates that carbon emissions moderate the influence of gender diversity on cost of debt. Employing Robustness Standard Errors, the study's findings are solid. The outcome of this research implies that board members and management may use this information to manage loan expenses by hiring more women. It is suggested that women on the board are more aware of environmental performance, which could lower the cost of debt for companies with low carbon emissions.

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Recent amendments to statutory reporting regime require the approval of strategic report (SR) by board of directors. As the guidance on SR encourages narrative content of firms’ value creation processes, regulators were concerned about the impact of board of directors on corporate transparency. Using content analysis approach upon a sample of nonfinancial UK firms listed in the FTSE 350, this study aims to examine whether expertise diversity of outside directors (ENEDs) on the board promotes intellectual capital (IC) disclosure. Drawing on the dual functions of boards of directors (monitoring and advising), we find that cross-directorship, nonaccounting and academic background are positively associated with level of IC disclosure, in line with agency and resource dependence perspectives. However, this is not the case for firms with more accounting ENEDs on the board. In addition, prior empirical studies have largely focused on IC disclosure in a static sense, while we find that it is the nonaccounting and academic ENEDs that matter to IC disclosure narratives connecting with corporate strategies. Results are robust to the use of alternative variables in board expertise. Our evidence suggests the needs of policymakers to better understand the role of boards of directors in the increasingly rich and complex information environment of corporate voluntary-based reporting. By adopting multiple attributes of IC disclosure narratives, this paper is distinct from what the extant disclosure literature has examined on the association with IC.

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The reliability of innovative textual information is important for investors to evaluate a firm’s innovation status. TONE positivity of such information can reflect a firm’s innovation capabilities; however, its authenticity may be compromised in the context of equity pledging. Therefore, this study addresses a critical gap by examining the relationship between equity-pledging behavior and the TONE positivity of innovative textual information among Chinese A-share listed firms from 2011 to 2022. Utilizing Python for text analysis and panel fixed-effect regression models, the study reveals that equity pledging is positively associated with TONE positivity. However, TONE positivity does not significantly relate to the firm’s actual innovation capabilities but instead tends to increase when the firm’s performance declines. These findings suggest that shareholders may strategically manipulate the TONE positivity to maintain control during equity pledging. Additionally, the study identifies mechanisms to enhance the reliability of TONE positivity, such as reducing external financing, mitigating internal agency problems, increasing the proportion of independent directors, and minimizing dual roles. The study’s findings remain robust across various controls, including market sentiment, alternative proxies for innovation capabilities, industry factors, and shareholder ownership, as well as applying alternative methods like propensity score matching and difference-in-difference. These insights contribute to improving the quality of innovation-related textual information disclosure during equity pledging, enabling investors to make more informed assessments of a firm’s innovation status for future investment.

Governing for the green: How European board attributes are driving environmental innovation

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This study examines the impact of corporate board attributes, namely, gender diversity, independence, size, tenure, and CEO duality, on environmental innovation (EI). The study utilised a large dataset of 13,278 firm‐year observations belonging to companies from 24 European countries and covered the period 2010–2021. Drawing from the agency and stakeholder theories, we find that all attributes addressed in this study have a positive impact on EI. These findings enhance our understanding of how businesses manage EI in the real world. Strategic focus is essential for achieving environmental sustainability and fostering innovation in business processes. This study expands our understanding of the role of diverse, long‐term, and independent board structures in fostering EI. We can use the insightful results it provides to plan future corporate strategies and policies.

Controlling shareholders, their incentives and corporate governance ratings

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Manag Finance

Hsueh-Tien Lu

Purpose: This study aims to facilitate the development of a better understanding of how controlling shareholders respond to the mandatory system of corporate governance rating (CGR) for all firms listed on Taiwanese stock markets and the incentives of controllers to apply corporate governance best practices. Design/methodology/approach: Using CGR data for all Taiwanese listed firms from 2014 to 2020, this study examines whether controlling shareholders determine a firm’s CGR. Findings: Single-family-controlled firms have the lowest CGRs, and management-controlled firms have the highest ratings. Blockholder-controlled firms are more likely to have top 20% ratings than single-family-controlled firms and bottom 20% ratings than single-family and management-controlled firms. All three categories of firms have unfavorable (favorable) ratings because of substitute governance effects (signaling effects). Originality/value: Management-controlled firms, in which agency problems refer to principal-agent conflicts, are more likely to have good ratings than single-family controlled firms, in which agency problems refer to principal-principal conflicts. Blockholder-controlled firms have extreme ratings, suggesting that multiple large shareholders develop corporate governance practices consistent with their best interests to increase firm value or expropriate wealth. Low cash flow rights and high control-ownership divergence lead firms to adopt additional governance arrangement(s) to make shareholders trust firms with capital and signal to shareholders that they can trust them with their capital.

The Impact of the Characteristics of the Board of Directors on Auditor's opinion Shopping: Evidence from Egypt

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Apr 2024

Esta pesquisa objetivou analisar a influência da propriedade estatal no desempenho das firmas e foi desenvolvida com base nas teorias de Direitos de Propriedade, Custo de Transação e Agência, que em alinhamento, proporcionaram um panorama mais preciso sobre este tema dinâmico. O exame foi conduzido através de teste de hipótese da relação entre a Propriedade Estatal (PE) e o desempenho das empresas representado pelo Valor Adicionado Líquido. A relação estatística foi realizada através da regressão em painel Pooled MQO, e, como complemento empírico, utilizou-se também a Regressão Quantílica. Os resultados das regressões pooled MQO e Quantílica convergiram e se complementaram, evidenciando que a Propriedade Estatal (PE) detém relação positiva e significante com o desempenho das empresas analisadas, contribuindo assim para a melhoria da geração de valor adicionado nestas entidades, até um certo limite. A principal contribuição do estudo foi a de demonstrar empiricamente a influência da propriedade estatal no desempenho das empresas e trazer para dentro do debate teórico o Estado em sua forma empresarial.

Board Leadership Structure and Firm Performance: Moderating Effects of Board Independence

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Akshita Arora

Our study examines the impact of dual leadership on the company’s performance. We also investigate the moderating effects of board independence on duality and firm-performance relationship. The article uses a panel data framework, and the estimation has been carried out using system-generalized methods of moments. The results of our study postulate that dual leadership negatively influences firm performance; however, when the moderator, board independence, is introduced in the empirical model, it affects firm performance positively. We submit that the extensive and complete abolition of CEO duality by Indian regulators may require caution for Indian markets. JEL Codes: G34, L25, C33

The relationship between board gender diversity and audit quality in Egypt

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Purpose This paper aims to examine whether female representation on boards is significantly associated with audit fees paid by top Egyptian listed companies. Design/methodology/approach The authors collect data on audit fees, board of directors' characteristics and financial data for the top 100 companies listed on the Egyptian Exchange (EGX100) for a period of six years. The authors employ an ordinary least squares regression model to capture the relationship between board diversity (i.e. the proportion of female board directors) and the natural logarithm of audit fees while controlling for firm and industry fixed effects as well as other known firm characteristics. Findings The authors find that audit fees are significantly associated with the proportion of females serving on firms' boards of directors. The findings suggest a complementary relationship between females on boards, as a quality-enhancing board attribute; and audit fees, as a proxy for audit effort and audit quality. Research limitations/implications Limitations of this study arise first from the relatively small sample size, and second from the fact that inferences may be specific to the Egyptian context and similar markets. Practical implications The results have important implications for Egyptian policy makers and regulators in terms of board composition. Social implications This study provides empirical evidence that further enforces the business case for women's empowerment and the impact of this on the effectiveness of corporate governance. Originality/value To the best of the authors’ knowledge, this is the first archival study to examine the association between female board representation and audit fees in Egypt.

Understanding board designs in Latin American firms: Insights from Brazil

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Jun 2023
J BUS RES

Firms are facing an increasing pressure to conform to a globally-accepted good governance norm that is largely based on developing economies in order to increase board monitoring. However, many Latin American firms deviate from a set of recommended corporate governance practices by adopting board designs with practices associatedwith low board monitoring. We attribute this deviation to the interplay of capacity and willingness to bear the high costsof board designswith few barriers to board monitoring. In this study, we usea configurational approach to inductively identify the board designs of publicly listed Brazilian firms. Our findings uncover a typology of board designscorrespondingto particular levels of firmsʼ capacity and willingness to bear the costsof board governance practices that conform to the good governance norm. We discuss our studyʼs implications for strategic corporate governance.

The Corporate Governance of Business Groups: What We Know and What Lies Ahead

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In this monograph, we discuss the corporate governance of business groups (BGs). To this end, we broadly define both BGs and corporate governance to provide an inter-disciplinary conceptualization. We begin by reviewing the key governance theories that scholars have applied to BGs thus far. We then examine the different corporate governance dimensions (ownership, boards of directors, top-management teams, external control mechanisms, and sustainability-related issues) across the different types of BGs. As a result, we identify what we know about these organizations’ corporate governance mechanisms. We close with a detailed discussion of fruitful areas for future research on BG corporate governance based on the gaps we identify.

Mapping the intellectual structure of corporate governance and ownership structure: a bibliometric analysis

Article

May 2023
Manag Law

Purpose This study aims to provide an overview of the development of corporate governance and ownership structure literature and offers a synopsis of the top contributors, influential articles, journals and potential research prospects on this subject. Design/methodology/approach This study used bibliometric analysis to review the literature. In all, 1,368 articles published between 1992 and 2022 in Scopus-indexed journals were considered. Findings This review reveals the top leading authors, institutions, countries and sources in the ownership structure research. Using bibliographic coupling, this study fetches four significant clusters. The theme of the first cluster revolved around cash holding. The second and third groups revealed how distinct characteristics of ownership impact the performance of the firm and disclosure decisions, respectively. The last and fourth cluster deals with risk-taking activities in financial institutions. Furthermore, this study suggests a road map in each cluster for future research. Originality/value Ownership structure plays a significant role in corporate governance by affecting manager incentives and determining the extent of monitoring. Previous studies have contributed to this field while focusing on the board of directors. However, no study synthesises the literature on ownership structure within corporate governance, which is the core element of the corporate governance system. Hence, this study gives a comprehensive overview and determines the latest and prominent research in ownership structure within corporate governance through bibliometric analysis.

The Moderating Role of Wedge-Control Ownership on the Relationship between Board Structure and Dividend Policy

Article

Full-text available

Apr 2023

Purpose: This study explores the impact of board structure on dividend payment policy. Method: The study examined a sample of non-financial firms listed on the Borsa Istanbul (BIST) from 2016 to 2020. The board structure was represented by the size of the board, board independence, female board membership, and board knowledge/skills in the research. Meanwhile, control wedge ownership was used as a moderating variable. In addition, two control factors were added, including return on equity and firm age. The study's dependent variable was the dividend per share, which represented the company's dividend payout policy. Findings: The regression analysis showed that the dividend policy was strongly linked with board size, female board membership, and knowledge/skill. On the other hand, the board independence variable exhibited a non-significant positive outcome, contrary to expectations. However, according to the findings, three of the four interaction associations examined are significant at the one and five-percent levels. The significance of the other interaction was determined to be negligible. Novelty: This study is different from previous research because this study is the first to examine The Moderating Role of Wedge-Control Ownership on the Relationship between Board Structure and Dividend Policy.

Does board diversity affect the cost of debt financing? Empirical evidence from Turkey

Article

Jan 2023

Purpose This study aims to investigate the effects of board characteristics on the cost of debt for non-financial companies in the Turkish capital markets. Design/methodology/approach Using a sample of 211 non-financial companies listed on Borsa Istanbul, this study examines how chairperson gender and board characteristics affect the cost of debt by using panel data analysis over the period of 2016–2020. A system generalized method of moments model is also applied to test the endogeneity issue. Findings The findings show that the presence of female chairperson and female directors on board reduces the cost of debt and the perceptions of default risk by fund providers, while board independence and board size do not have a significant impact on the cost of debt. The results provide insightful information for companies and policymakers. Companies can alter board composition through gender diversity, while policymakers can introduce new policies in encouraging the presence of female directors on boards. Originality/value This study primarily enriches the literature on the effect of board diversity on debt financing cost in a leading emerging market, enabling companies in emerging markets to better mitigate agency costs and finance their investment through effective board composition. Second, it provides evidence that financial institutions consider companies with chairwomen and women directors on the boards less risky and charge them less for debt financing than they do for companies with man chairperson. Finally, the results support policymakers to take actions to increase female presence on board.

The effectiveness of board of directors and family ownership: interaction and impact on the discretionary accruals

Article

Jan 2021

Anas Ghazalat

The Impact of Corporate Governance on Financial Stability of the English Premier League (EPL) during COVID-19

Article

Jun 2022
Int J Account Audit Perform Eval

This study aims to explore the relationship between corporate governance and the financial stability of football clubs in the English Premier League (EPL) before and during COVID-19 pandemic. Using data collected manually from the annual reports over the period 2018-2020, the key findings have revealed that smaller boards, with less independent directors, more female directors, more directors with managerial ownership, and a Big Four audit firm, have helped football clubs to retain financial stability and improve firm performance during the pandemic. In particular, a diverse board with more female directors, and a Big4 audit firm, seem to yield the most significant results across all proxies of financial stability. Policymakers and regulators would benefit from these findings to promote governance arrangements with significant impact on the EPL financial stability, while investors and club owners should also consider adapting those specific practices to retain their club’s financial stability over the long run.

Corporate Governance and Performance in the UK Insurance Industry Pre, During and Post the Global Financial Crisis

Article

Jul 2022
Int J Account Inform Manag

Purpose: Due to concerns from stakeholders on how corporate governance contributes to monitoring insurance companies during the financial crisis, this study aims to investigate whether and how various corporate governance practices affect the firm performance of listed and non-listed insurance firms in the UK during the financial crisis. Design/methodology/approach: This paper applies a unique manually collected dataset from listed and non-listed insurance firms in the UK. This study uses different regressions models to test the hypotheses and address the endogeneity problem. Findings: The findings show that board non-duality and the presence of a majority shareholder, improve firm performance in insurance companies. Furthermore, the findings for the sub-samples indicate a stronger positive association between the board of directors and firm performance in listed insurance companies after the financial crisis, while a positive impact has been found between large shareholders and external audit firms in non-listed insurance companies before and during the crisis. Practical implications: The results offer important practical implications for the government, management, shareholders, and policymakers. For example, regulators and policy-makers should benefit from these results to revise the recommendations for corporate governance mechanisms that prove to be effective on firm performance, as well as those mechanisms that have different or unexpected effects among listed or non-listed firms, and/or during the turbulent periods. Investors should be aware of those specific corporate governance mechanisms that would have a higher effect on the performance of UK insurance firms in which they are considering investing. Originality/value: This study contributes to the current literature by exploring the effect of corporate governance on financial performance by comparing listed and non-listed insurance companies during the financial crisis. Further, to the best of the authors’ knowledge, this is the first study to use two new insurance-related performance measures, the revenue growth ratio and the adjusted combined ratio as performance measurements in order to explore whether these new variables create any insights.

Corporate Social Responsibility dan Struktur Kepemilikan Serta Perannya terhadap Nilai Perusahaan

Article

Full-text available

Nov 2021

Firm value is the perception of investors on the value of the company's performance and the company's prospects in the future. This study aims to determine the effect of corporate social responsibility and ownership structure on firm value. The research method used is the verification method. The objects in this study are non-state-owned basic and chemical industrial companies listed on the Indonesia Stock Exchange for the period 2010-2018 with a total of 46 companies and 414 observational data. The data analysis technique used in this research is piecewise linear regression. The results of the study state that corporate social responsibility has no significant effect on firm value, ownership structure has a nonlinear relationship with firm value, and the research model on the influence of corporate social responsibility and ownership structure on firm value which is controlled by firm size, profitability, and leverage can be used to explain or predict firm value. Corporate social responsibility and ownership structure have an indirect effect on firm value.

TOP MANAGEMENT COMPENSATIONS, AUDIT QUALITY AND OWNERSHIP CONCENTRATION: INTERACTION AND IMPACT ON THE AGGRESSIVE DISCRETIONARY ACCRUALS

Article

Full-text available

Jul 2020

Anas Ghazalat

This study emphasizes the substantial of researching the interaction effect of using executive compensation, audit quality and ownership concentration over the aggressive managerial behaviour in essentially unfamiliar, emerging market and non-Western. The study analyses data for a sample of 912 observations covered the non-financial firms listed in ASE during the period from 2009 until 2016. To afford indication on this topic, panel data analysis is used with taken into consideration conducting two models to determine the variable effects with and without the interaction effect. The robust results of the random effect logistic regression document that executive compensation of non-financial firms plays an effective role to alignment the interests of the contracting parties thus minimize aggressive practices of discretionary accruals. Firms with high level of executive compensations are engaged with high quality of financial reporting. Also, all audit quality parameters provide a negative association with Agg.EM. Thus, firms with high audit quality have low aggressive discretionary accruals practices. Regarding to the interaction effect, results also show that the monitoring role of external auditor services provided by Big4 firms is positively moderated in firms with high ownership concentration. This proves that the auditing firm type in firms with high concentration is unlikely to be effective. The findings indicate that the type of audit firms become as a legal fiction when the central agency problem is existed. While, the quality of auditing services with high fees or the auditor opinion unaffected by the majority of shareholders attitudes since the majority of shareholders avoid to selecting auditor who not agree with them.

Connecting the Dots: Do Financial Analysts Help Corporate Boards Improve Corporate Social Responsibility?

Article

Full-text available

Dec 2021

This paper presents an examination of the joint impact of board structural elements at firm level and financial analysts as market-level corporate governance (CG) on corporate social responsibility (CSR) performance. Our study contributes to the CG-CSR literature by adopting the bundling approach, a perspective that has recently attracted researchers' attention as an answer to any heterogeneity and fragmentation in existing findings. It is based on an extensive sample consisting of 7,739 firm-year observations of US firms for the 2006-2015 period. The findings suggest that financial analysts complement the corporate board with more independence, gender diversity and a specialized CSR committee to realize a certain level of CSR performance of a firm. The findings also indicate that analysts substitute for those internal governance factors that are associated with weaker boards-larger sizes and dual-role CEOs. We also draw implications for research and practice from our findings.

Corporate characteristics, audit quality and managerial entrenchment during the COVID-19 crisis, IJPPM 07-2021-0401

Article

Full-text available

Oct 2021
Int J Prod Perform Manag

Purpose The purpose of this paper is to investigate the relationship between some corporate characteristics, audit quality and managerial entrenchment in Tunisian companies. Design/methodology/approach The multivariate regression model is used for hypothesis testing using a sample of 224 listed observations on Tunisian Stock Exchange during 2014–2020. An exploratory factor analysis of four variables (chief executive officer (CEO) duality, CEO tenure, CEO seniority and CEO age) is used for calculating a unique index assessing the managerial entrenchment. Findings The results show a negative and significant relationship between audit quality and managerial entrenchment. The authors also find that firm characteristics affect management entrenchment. Precisely, corporate financial performance and firm leverage show positive connections with managerial entrenchment (ME). Additional analysis confirms the negative impact of the coronavirus disease 2019 (COVID-19) pandemic on managerial entrenchment level. Practical implications The study’s findings have practical implications that may be useful to different stakeholders, policymakers and regulatory bodies interested in reducing management entrenchment. This study offers signals to shareholders about specific governance attributes, namely audit quality, that control the extent of manager's entrenchment. Originality/value The originality of this paper consists in focusing on developing countries, namely the Tunisian context; while the managerial entrenchment phenomena has been widely examined in developed markets. Moreover, contrary to the overwhelming majority of previous studies that has used individual indexes for evaluating the entrenchment, the authors calculate a mixed index of managerial entrenchment using the principal component analysis based on four governance mechanisms (CEO duality, CEO age, CEO seniority and CEO tenure).

Once a Founder, Always a Founder? The Role of External Former Founders in Corporate Boards

Article

Full-text available

Sep 2021

Public corporations often appoint external former founders to their boards in hopes that these will encourage a (re‐)focus on creating future new business. Seeking to investigate this common practice, we integrate upper echelons theory with imprinting theory, arguing that founding a company indeed represents a formative experience that will leave an imprint on founders and their subsequent board decision‐making. Subsequent to their founding experience, however, some founders may be subjected to likewise formative but public corporate experiences, for instance, by taking their own business public or by assuming CEO positions in other corporations, that will lead to a decay of the original founding imprint and its effect. We find support for our reasoning across corporate boards in S&P1500 firms ranging from 2000 to 2012.

The impact of the independence of the Audit committee on the Shopping of auditors' opinions in light of market competition: an applied study on a sample of banks listed in the Iraq Stock Exchange

Article

Full-text available

Dec 2024

Bilal Amer Ibrahim

The current study aims to investigate the impact of independence as one of the most important characteristics of the audit committee on the shopping of external auditors' opinions in light of the competition between banks listed on the Iraq Stock Exchange. The researcher used a sample of 32 banks, from whose annual financial data 160 observations were extracted during the period from 2019 to 2023, Audit committee independence was measured based on the percentage of independent audit committee members, auditors’ opinion shopping was measured as a dummy variable, and competition was measured by the Herfindahl index, and by a logistic regression model using the SPSS statistical analysis program to analyze these observations., the results of the hypothesis test showed that there is a statistically significant moral impact between the independence of the audit committee and the shoppting of auditors' opinions, and that competition between banks has no role in this impact, and that the governing variables represented by profitability, liquidity and financial leverage are important in influencing the shopping of auditors' opinions. This study recommended that companies and government agencies in Iraq enhance the requirements for the independence of audit committees and set standards to evaluate their level, and the importance of training audit committee members to improve their understanding of their roles and responsibilities.

تأثير استقلالية لجنة التدقيق على تسوق آراء المدققين في ظل منافسة السوق : دراسة تطبيقية على عينة من المصارف المدرجة في سوق العراق للأوراق الماليةThe impact of the independence of the Audit committee on the Shopping of auditors' opinions in light of market competition: an applied study on a sample of banks listed in the Iraq Stock Exchange

Article

Full-text available

Dec 2024

بلال عامر ابراهيم

تهدف الدراسة الحالية للبحث في تأثير الاستقلالية كإحدى وأهم خصائص لجنة التدقيق على تسوق اراء المدققين الخارجيين في ظل المنافسة بين المصارف المدرجة في سوق العراق للأوراق المالية، استخدم الباحث عينة مكونة من 32 مصرف، تم استخراج من بياناتها المالية السنوية 160 ملاحظة خلال الفترة من 2019 إلى 2023، وباستخدام نموذج الانحدار اللوجستي باستخدام برنامج التحليل الاحصائي SPSS لتحليل لهذه الملاحظات، أظهرت نتائج اختبار الفرضيات أن هناك تأثير معنوي ذو دلالة احصائية بين استقلالية لجنة التدقيق وتسوق رأي المدققين، وان المنافسة بين المصارف ليس لها اي دور في هذا التأثير، وأن المتغيرات الحاكمة المتمثلة بالربحية والسيولة والرافعة المالية لها أهمية في التأثير على تسوق آراء المدققين، واوصت هذه الدراسة الشركات والهيئات الحكومية في العراق تعزيز متطلبات استقلالية لجان التدقيق ووضع مقاييس لتقييم مستواها، واهمية تدريب أعضاء لجنة التدقيق لتحسين فهمهم لأدوارهم ومسؤولياتهم.

أثر ملكية كبار حملة الأسهم على العلاقة بين خصائص لجنة المراجعة وجودة المراجعة في ظل تفشي جائحة كوفيد-19: دراسة إمبريقية على الشركات المساهمة المصرية

Article

Sep 2024

Ownership Structure and Shareholders: Perspectives on Conflict between State Participation in the Value of Companies on the Brazilian Stock Exchange - B3

Article

Full-text available

Jul 2023

Purpose: The main objectives are the influence on the various interested shareholders, the role of institutionalized the State in the shareholding structure of companies, and their influence on share prices after the events of media about disclose of these in this study. Design/methodology/approach: In the first moment, the investigation had a quantitative approach of a relational nature based on the events investigated between 2010 and 2020 and were published in the newspapers. In addition to the share prices, the variables investigated corresponded to the various forms of state participation. Based on stock valuation data, statistical methods were applied to a secondary database containing measurable information provided by organizations operating in the Brazilian stock market and documentary evidence provided by companies. Findings: The presence of the State as a shareholder has significant relevance in the Brazilian capital market and the application of public resources. It is the responsibility of society and academia to monitor such applications and ascertain whether it generates value for the business and the country. Within the study's boundaries on the management of public resources and investments, Corporate Governance has been arising the debate and questioning about the government's performance as a shareholder in the firm. Originality/value: When investigating the perspective of the State as a shareholder has significant relevance in the Brazilian capital market and the application of public resources. Society and academia's responsibility is to monitor such applications and ascertain whether it generates value for the business and the country.

Audit committee characteristics, trust and audit quality: Evidence from Hong Kong

Thesis

Full-text available

Apr 2019

Kwok Yip Cheung

This thesis comprises of two parts. Part One of the thesis denotes an archival modelling study that evaluates the relationships between effective audit committee characteristics (size, independence, financial expertise, meeting frequency, directorship, tenure and age of audit committees) and perceived audit quality in Hong Kong. Part Two is a questionnaire survey study exploring the effects of external auditors’ trust in audit committee members on both their interactions and perceived audit quality in Hong Kong. In the archival modelling study, discretionary accruals estimated by the modified Jones model were employed in order to measure perceived audit quality. Fixed effect panel data regression with robust standard errors was used as primary analysis. On the basis of data obtained from the Hong Kong Hang Seng Composite Index between 2010 and 2015, the findings suggest that their financial expertise, size, tenure and age are important determinants of perceived audit quality. This result indicates that their expertise enables them to fulfil their oversight role competently, whereas their size provides them with sufficient resources to be able to perform their roles. Similarly, their length of tenure enables them to obtain more experience and knowledge of the opera- tions of companies, while their age indicates that they may have less energy to perform their oversight role and have difficulties in keeping abreast of changing environment of companies. Thus, an audit committee with old members may reduce audit quality. Audit fees and choice of auditor are used as the measures of audit quality for the robustness checks. The results of ro- bustness checks demonstrate that a large audit committee with financial expertise demands greater efforts from external auditors, as indicated in higher audit fees. However, audit committee members’ directorships are found to be negatively associated with audit fees but positively related to the appointment of Big 4 auditors. In the questionnaire survey study, perceived audit quality is measured based on external auditors’ interactions with audit committee members. Semi-structured questionnaires were used in order to assess the levels of their trust in audit committee members and their interactions. Ordinary least square with robust standard errors, independent t-tests and thematic analysis were used in this study. According to the findings, the external auditors trust them because they have and display integrity, competence and goodwill. These findings also suggest that their trust in audit committee members improve their interactions in terms of sharing information, devoting their time and efforts to an external audit and providing their comments on managers. Overall, both findings are congruent with agency theory and social interdependence theory. On the one hand, agency theory states that higher quality audit committees are associated with effective monitoring, which, in turn, helps to improve audit quality so that earnings management is constrained. On the other hand, social interdependence theory states that when two parties (external auditors and audit committee members, in this case) depend on one another, they will try to improve their interactions so that their common goals (high audit quality) can be achieved on the basis of trust. The findings are of potential interest to policy makers, professionals, boards of directors and audit firms, particularly on issues relating to audit quality and the mandating of corporate governance practices.

"El mercado de valores como alternativa de financiamiento" en: Libro 50 Años de la Superintendencia del Mercado de Valores, Peru, 2022 reeditado en 2023 https://www.smv.gob.pe/Uploads/Animaciones/LibroSMV/index.html

Article

Full-text available

May 2023

Enrique J. Solano Morales

Introducción Este artículo pretende motivar reflexiones para tomar decisiones que promuevan al mercado de valores como alternativa de financiamiento, entendiendo que el mercado de valores se inserta en una economía de mercado que propicia la libre empresa, la libre competencia y que contribuye a asignar, a canalizar de manera más eficiente, los recursos provenientes del ahorro a la inversión. Se han organizado estas reflexiones en torno a tres ejes: I. Perú país de emprendedores, de jóvenes, de informalidad, de empresas familiares. II. Conflictos de interés. Confianza. La empresa en el siglo XXI. III. Propuestas a implementar. El primer eje de reflexiones revisa rápidamente lo acontecido en las últimas décadas en el mercado de valores, particularmente respecto al ideal de accionariado difundido como expresión de democratización del capital, como objetivo de capitalismo popular apoyado principalmente por el Estado. En contraste con ello, se presenta la realidad empresarial de informalidad, de emprendimientos de subsistencia, autoempleo y de mayoría de empresas familiares que prevalecen en el Perú. El eje de conflictos de interés y construcción de confianza procura abordar un tema central que muchas veces se soslaya. Los deberes básicos de lealtad y debida diligencia, que deben estar presentes en la intermediación en el mercado de valores, se enfrentan al abuso del interés particular de la posición de dominio, de la concentración y de la información privilegiada. Anteponer el beneficio propio con usos y costumbres que afectan la confianza terminan por destruirla. No permiten vislumbrar el largo plazo, se prefiere lo inmediato, el corto plazo. En este eje también se reflexiona sobre el rol de la empresa en el siglo XXI, particularmente de aquellas que practican o están en búsqueda de políticas de buena gobernanza corporativa. La confianza es un pilar fundamental para desarrollar el mercado de valores, propiciar el encuentro de emisores, inversionistas, desarrollar labores de intermediación.

Calculating a Composite Index for Shareholders Protection

Article

Full-text available

Apr 2022

Abstract Objective: Shareholders' protection is an interdisciplinary issue and has become one of the ideals of every legal and economic system, receiving the attention of various regulatory, monitoring, and executive authorities. Considering the separation of ownership and control in companies, shareholder protection seems to be far from such ideals. There are basic concerns and challenges in this regard. One of the controversial issues is developing a composite index that can show the level of shareholder protection. This study aims to formulate a composite index at the level of companies in the emerging market of Iran. Methods: The statistical technique of discriminant analysis was used to measure the weight of the combined index; 166 listed companies were separated into two groups of companies. Among them, 83 companies had the feature of shareholders protection and the rest did not. The composite index was developed accordingly. The results were strengthened based on the year and industry separation. The reliability of the proposed composite index was also tested. Results: The results proved the proposed composite index of shareholder protection to be highly reliable. The index was able to classify Iranian companies into groups of protection and non-protection of shareholders with considerable accuracy. The criteria of related party transactions had the highest weight and the disclosure rating had the lowest weight in the proposed composite index. In addition, supplementary tests for the composite index were conducted based on the year and industry. Also, due to the use of different criteria, the findings proved the proposed composite index to include the results of individual criteria. The results of the covariance test of the proposed composite index with one-dimensional criteria indicated that the changes in the composite index with individual variables were in the same direction, which increased the reliability. Conclusion: According to the findings, shareholder protection relies on the opportunistic motives of managers and controlling shareholders. The result is consistent with the Agency Theory. Moreover, changing the measure of shareholder protection from individual indicators to composite one leads to improve of theoretical foundations by expanding the scope of analysis. Based on theories and evidence, the agency problem makes it difficult to regulate the behavior of managers (or controlling shareholders) in line with the interests of the company. It seems that the agency problem even leads to the expropriation of minority shareholders. Also, based on information asymmetry, managers prefer to limit the provision of information about their operations to shareholders and secure their interests. The proposed index can be useful for policymakers and investors to classify companies into two groups protected stocks and non-protected ones. It can help them with decision-making procedures, too.

Tell Me Who You're With: the State and Government Shareholder, Media and Price of Stock in Brazilian

Preprint

Full-text available

Mar 2023

The main objectives are the influence on the various interested shareholders, the role of institutionalized the State in the shareholding structure of companies, and their influence on share prices after the events of media about disclose of these in this study. In the first moment, the investigation had a quantitative approach of a relational nature based on the events investigated between 2010 and 2020 and were published in the newspapers circulating in Brazil and the world. In addition to the share prices, the variables investigated corresponded to the various forms of state participation. Based on stock valuation data, statistical methods were applied to a secondary database containing measurable information provided by organizations operating in the Brazilian stock market and documentary evidence provided by companies. The presence of the State as a shareholder has significant relevance in the Brazilian capital market and the application of public resources. It is the responsibility of society and academia to monitor such applications and ascertain whether it generates value for the business and the country. Within the study's boundaries on the management of public resources and investments, Corporate Governance has been arising the debate and questioning about the government's performance as a shareholder in the firm.

The impact of managerial ownership on audit fees: Evidence from Portugal and Spain

Article

Full-text available

Dec 2022

Sandra Alves

This study examines the impact of managerial ownership on audit fees in a context of concentrated ownership and poor investor protection. Using samples of Portuguese and Spanish listed companies for the period 2010–2021, the results of this research suggest that there is a non-linear relationship between managerial ownership and audit fee which corresponds to a pattern of “alignment-entrenchment-alignment”. In Portugal and Spain, the convergence of interest effect dominates the entrenchment effect in the low and high ranges of managerial ownership, leading to the conclusion that a policy of providing management with amounts of equity within these ranges of managerial ownership should reduce agency costs and decrease audit fees. In contrast, in Spain, the entrenchment effect dominates the convergence of interest effect in the intermediate range of managerial ownership, which have the effect of increasing audit fees.

Principles of Good Governance in Quranic’s Perspective

Article

Full-text available

Sep 2022

The purpose of this study is to find out how the Quran perspectives in explaining the principles of good governance. The methodology used in this research is library research through a qualitative approach , namely research that processes thinking deductively and inductively. The source of this research data consists of a primary data source in the form of Verses of the Qur'an which is used as a reference with the explanation of several mufasir, and a secondary data source consisting of relevant previous scientific research works in the form of books, journals and other scientific works. The metode of the Interpretation of Al-Quran used as a method of analysis in this study is the method of tafsir al-maudhu'i. In conclusion, some contextual principles in good governance are contained in several verses in the Qur'an, both on Transparency, Accountability, Responsibility, Independentity, and Fairness. The important point of this research is that in offering a solution to a problem, Al-Quran always provides perspective not only materially but also a spiritual perspective.

Corporate Governance Applications in Mutual Fund Industry Evidence from Egypt

Article

Full-text available

Apr 2022

Nancy Youssef

The purpose of this article is twofold. Empirically, the author uses a unique set of data in an emerging market (Egypt) to re-assess the inter-correlation between mutual fund governance, performance, fee structure, and stock selection and market timing of the fund managers' pre-and-post 2007-2008 financial crises. Methodologically, the author develops a Structural Equation Model to systematically address the endogeneity problem. The author contributes to the literature in two aspects. Firstly, the author identified some special features that only exist in developing countries. Secondly, the author answers the research question in an integrated and holistic way, so it bridges the three seemingly separate strands of literature on fund governance, performance and fees. The results are relevant to the misconduct of corporate governance rules in Egypt. Overall, the financial crisis demonstrates a need for enforcing the application of the regulations of the Egypt Code of Corporate Governance to increases the firm value.

تقییم الدور الرقابی لکبار المساهمین على العلاقة بین ملکیة المساهم المسیطر وممارسات إدارة الأرباح: دلیل تطبیقی من البیئة المصریة

Article

Apr 2022

Corporate Board of Directors' Attributes and Audit Fees

Article

Full-text available

Sep 2021

This study examines the effect of corporate board of directors' attributes on audit fees for Nigerian listed Deposit Money Banks (DBMS). The study adopts an ex post facto research design and uses data on 10 deposit money banks sampled via purposive sampling technique using data spanning from 2012 to 2018. Results based on Generalized Method of Moment show that corporate board of directors' proxies do not signifi cantly infl uence audit fees of Nigerian deposit money banks. However, fi rm size and profi tability are found to affect external audit fee signifi cantly. The study therefore concludes that corporate boards of directors' attributes do not individually signifi cantly affect audit fees in Nigerian listed Deposit Money Banks. Arising from the fi ndings, it is recommended that corporate governance practices should be strengthened so as to aid external audit.

2019 Azureen and Naim- Social and Economic Development Performance of Islamic Banks Ideals and Reality- Journal of Business Innovation

Article

Full-text available

Feb 2019

Investigation the impact of Ownership Concentration on the relationship between Board Independence and Audit Services Fees: Contraposition Supply & Demand Based Perspectives and Misalignment and Expropriation Effect Hypotheses

Article

Full-text available

Feb 2020

Objective: This research analyzed the impact of institutional ownership concentration on the relation between board independence and audit services fees to distinguish between supply & demand based perspectives, and also misalignment effect & expropriation effect hypotheses. Methods: Statistical analyses include 118 firms listed in the Tehran Securities & Exchange over the period 2013 to 2018; thereby, 708 firm-year observations have analyzed. Research hypotheses have investigated through multivariate regression models using panel data and generalized least squares method. Results: According to the results, there is a meaningful and positive relationship between board independence and audit services fees. In addition, there is a meaningful and negative relationship between institutional ownership concentration and audit services fees. Findings show that institutional ownership concentration has meaningful and negative impact on the relation between board independence and audit services fees. Also, these results confirmed at the high level of board independence and high level of ownership concentration. Other findings show that there is no relationship between auditor size and audit services fees. While firm size, debt ratio, receivables and inventories ratios, and audit opinion have a meaningful and positive relationship with audit services fees; but, current ratio and return on assets have meaningful and negative relationship with audit services fees. Conclusion: The positive relationship between board independence and audit services fees is consistent with the demand based perspective of auditing services and complementary approach; also, the negative relationship between institutional ownership concentration and audit services fees is consistent with the supply based perspective of auditing services and substitutive approach. Based on the findings, the negative impact of institutional ownership concentration on the relationship between board independence and audit services fees is consistent with the expropriation effect hypothesis. As a whole, the research results can be useful for financial information users in determining the effective factors on audit fees.

Corporate control in Europe

Article

Full-text available

Aug 2002

Data from the EU’s Large Holdings Directive (88/627/EEC) allow detailed analyses of the control of European corporations to be undertaken for the first time. This paper reports results from an international study of these data by members of the European Corporate Governance Network. It records high levels of concentration of control of corporations in many European countries with single blockholders frequently controlling more than 50 % of corporate votes. In contrast, a majority of U.K. listed companies have no blockholder owning more than 10 % of shares and a majority of U.S. listed companies have no blockholder with more than 6 % of shares. Distributions of voting blocks reveal that control is concentrated in forms in which regulation confers particular advantages : shareblocks are concentrated at levels at which there are significant control benefits. This suggests a relation between regulation and the structure of ownership of companies that goes beyond existing "over-", "under-" or "optimal-regulation" theories. The paper discusses an alternative view that ownership is largely irrelevant in the face of dominant management control. It also considers a contending thesis that the technology driven project realisation periods are relevant to the period for which corporate control needs to be exerted. Classification JEL : G31, G34

Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives

Article

Full-text available

Jul 2003

Boards of directors serve two important functions for organizations: monitoring management on behalf of shareholders and providing resources. Agency theorists assert that effective monitoring is a function of a board's incentives, whereas resource dependence theorists contend that the provision of resources is a function of board capital. We combine the two perspectives and argue that board capital affects both board monitoring and the provision of resources and that board incentives moderate these relationships.

Agency Relationships in Family Firms: Theory and Evidence

Article

Full-text available

Mar 2001
ORGAN SCI

Does owner management necessarily eliminate the agency costs of ownership? Drawing on agency literature and on the economic theory of the household, we argue that private ownership and owner management expose privately held, owner-managed firms to agency threats ignored by Jensen's and Meckling's (1976) agency model. Private ownership and owner management not only reduce the effectiveness of external control mechanisms, they also expose firms to a "self-control" problem created by incentives that cause owners to take actions which "harm themselves as well as those around them" (Jensen 1994, p. 43). Thus, shareholders have incentive to invest resources in curbing both managerialand owner opportunism. We extend this thesis to the domain of the family firm. After developing hypotheses which describe how family dynamics and, specifically, altruism, exacerbate agency problems experienced by these privately held, owner-managed firms, we use data obtained from a large-scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory. Finally, we discuss the implications of our theory for research on family and other types of privately held, owner-managed firms.

Exploring the Agency Consequences of Ownership Dispersion Among the Directors of Private Family Firms

Article

Full-text available

Apr 2003

Using an agency-theoretic lens and insights drawn from the behavioral economics and family business literatures, we developed hypotheses concerning the effect of dispersion of ownership on the use of debt by private family-owned and family-managed firms. A field study of 1,464 family firms was conducted. Results suggest that, during periods of market growth, the relationship between the use of debt and the dispersion of ownership among directors at family firms can be graphed as a U-shaped curve.

Evidence on the Impact of Internal Control and Corporate Governance on Audit Fees

Article

Full-text available

Mar 2008
Int J Audit

Previous studies generally suggest that internal control and external auditing can substitute for each other, so that better internal control will be associated with lower audit fees. However, their empirical results do not support this view. In contrast, previous studies of the interaction between corporate governance and external audit services often assume that they are complementary, and that improved governance is associated with higher audit fees, although the evidence about this issue is also mixed. We examine whether the ‘substitution’ or ‘complementary controls’ views apply. We find that measures of internal auditing, corporate governance, and concentration of ownership are all positively related to audit fees, consistent with the explanation that controls are complementary. The study makes a contribution by assisting regulators in understanding the effects of regulation of corporate governance, and by showing auditors and auditing standard setters that the view that internal controls can substitute for external auditing may not be helpful. We also find that these relationships hold only in a relatively less regulated environment.

1 The Fundamental Agency Problem and Its Mitigation

Article

Full-text available

Dec 2007

A central tenet of agency theory is that there is potential for mischief when the interests of owners and managers diverge. In those circumstances, and for a variety of reasons, managers may be able to exact higher rents than are reasonable or than the owners of the firm would otherwise accord them. While that foundational element of agency theory is secure, other elements derived directly from agency theory are far less settled. Indeed, even after some 75 years of conceptualization and empirical research, the three principal approaches that have long been proposed to mitigate the fundamental agency problem remain contentious. Accordingly, we provide a review of the fundamental agency problem and its mitigation through independence, equity, and the market for corporate control.

Audit Fees: A Meta-Analysis of the Effect of Supply and Demand Attributes

Article

Full-text available

Mar 2006
CONTEMP ACCOUNT RES

We evaluate and summarize the large body of audit fee research, and use meta-analysis to test the combined effect of the most commonly used independent variables. The perspective provided by the meta-analysis allows us to reconsider the anomalies, mixed results and gaps in audit fee research. We find that, while many independent variables have very consistent results, there are also several where there is no clear pattern to the results and others where significant results have been found only in certain periods or particular countries. These variables include a loss by the client and leverage, which have become significant in comparatively recent studies; internal auditing and governance, both of which have mixed results; auditor specialization, regarding which there is still some uncertainty; and the audit opinion, which was a significant variable before 1990 but not in more recent studies.

Codes of Good Governance

Article

Full-text available

Feb 2011

Manuscript Type: Review Research Question/Issue: We review the recent developments in the area of codes of good governance, a set of best practice recommendations regarding the behavior and structure of the board of directors. Research Findings/Results: Our review of the literature on codes of good governance highlights their rapid spread around the world and how academic research has lagged behind in analyzing this topic. Despite the criticism that the codes' voluntary nature limits their ability to improve governance practices, codes of good governance appear to have generally improved the governance of countries that have adopted them, although there is need for additional reforms. Theoretical Implications: Unfortunately, research on codes of good governance has developed in insolation with little cross-fertilization across the different disciplines. We propose a multi-level framework to discuss three main topics that have emerged within the codes literature: the motivations behind the diffusion of codes across countries and its implications for convergence of corporate governance practices; the content of the codes and their “comply or explain” dimension; and the relationship between code compliance and firm performance. We conclude by proposing four areas of future research. Practitical Implications: Code development, adoption, and compliance are directly related to issues surrounding the governance of the firm, and in particular to all the interactions that a director has inside and outside the firm. Codes are regulations that emerge from policy-making negotiations between multiple stakeholders, such as the state (via the stock market regulators) and the investors.

The firm's strategic dynamics and corporate governance life-cycle

Article

Full-text available

Oct 2006
Int J Manag Finance

Purpose The paper seeks to present a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. Design/methodology/approach The agency research agenda is extended to include other corporate governance roles, such as resource and strategy functions, alongside monitoring and control functions. Theoretical arguments are supported by empirical data related to the founder‐manager/IPO, IPO/maturity, maturity/decline and reinvention thresholds. Findings The paper shows that corporate governance parameters may be linked to strategic thresholds in the firm's life‐cycle. Successful transition over a threshold is accompanied by a rebalancing in the structure and roles of corporate governance compared with each previous stage in the cycle. Research limitations/implications In the absence of longitudinal data relating to firms as they pass through all life‐cycle stages the study has been restricted to reporting illustrative data from different studies regarding each strategic threshold. Further research might usefully undertake detailed long‐term case studies using a combination of archival and interview data to trace the evolution of firms across the four thresholds. Originality/value This paper develops a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. It rejects the notion of a universal governance template and argues that corporate governance parameters may be linked to transitions from one stage to another in the firm's life‐cycle. Accordingly, it argues that changes in a firm's strategic positioning may be associated with rebalancing between the wealth‐protection and wealth‐creation functions of governance.

Corporate Governance and Labour Management: An International Comparison

Article

Full-text available

Jan 2005

This book is about the relationship between corporate governance regimes and labour management. It examines how finance and governance influence employment relationships, work organization, and industrial relations by means of a comparative analysis of Anglo-American, European, and Japanese economies. The starting point is the distinction widely found in the corporate governance, business systems, and political economy literature between countries dominated by 'shareholder value' conceptions of corporate governance and those characterized by 'stakeholder' regimes. By drawing on a wide range of countries, the book is able to demonstrate the complexities of corporate governance arrangements and to present a more precise and nuanced exploration of the linkages between governance and labour management. Each country-based chapter provides an analysis of the evolution and key characteristics of corporate governance, and then links this to labour management institutions and practices. The book goes beyond the 'complementarities' between governance and labour management systems identified in recent literature, and attempts to identify causal relationships between the two. It shows how labour management institutions and practices may influence finance and corporate governance systems, as well as vice versa. The chapters in this book illuminate current debates about the determinants of corporate governance, the convergence of national 'varieties of capitalism', and the impact of corporate governance on managerial behaviour. The book highlights the complexities of corporate governance systems and refines the distinction between market/outsider and relational/insider systems.

Board Structure in the UK and Germany: Convergence or Continuing Divergence?

Article

Full-text available

Jan 2001

Paul L. Davies

This paper examines the extent to which there has occurred a functional convergence between the German two-tier board and the one-tier UK board as a result of the 'corporate governance' reforms which have occurred in the UK over the past decade. Those reforms, embodied in listing rules rather than traditional company law, emphasise the different roles of executive and non-executive directors and monitoring role of the latter. The paper analyses the development of the corporate governance reform movement in the UK from the report of the Cadbury Committe in 1992 and argues that these changes have moved the British one-tier board closer to the two-tier model at a functional level. However, it concludes that there are still significant differences between the German model of the board's functions and the British model. This arises because in the German model the so-called 'supervisory' board discharges an important function in providing linkages to stakeholder groups, notably employees, in addition to its monitoring role. Indeed, in German law and practice significant compromises on the effectivenss of the board's monitoring role have been accepted in order to accommodate the linkages to non-shareholder groups. Linkages to non-shareholder groups, by contrast, are not a significant function of the British board, even after the corporate governance reforms in that country. Finally, the paper concludes with some speculation as to the conditions under which German law might come under pressure to improve the monitory function of the board on behalf of shareholders.

Investor Capitalism: How Money Managers Are Changing the Face of Corporate America

Book

Jan 1996

Michael Useem

The fundamental agency problem and its mitigation: independence, equity, and the market for corporate control, in: Walsh, J.P. Brief, A.P. (eds.)

Article

Jan 2008
The Academy of Management annals

Meta-analytic reviews of board composition, leadership structure, and financial performance

Article

Mar 1998

Careful review of extant research addressing the relationships between board composition, board leadership structure, and firm financial performance demonstrates little consistency in results. In general, neither board composition nor board leadership structure has been consistently linked to firm financial performance. In response to these findings, we provide meta-analyses of 54 empirical studies of board composition (159 samples, n=40,160) and 31 empirical studies of board leadership structure (69 samples, n=12,915) and their relationships to firm financial performance. These-and moderator analyses relying on firm size, the nature of the financial performance indicator and various operationalizations of board composition-provide little evidence of systematic governance structure/financial performance relationships. (C) 1998 John Wiley & Sons, Ltd.

Corporate Governance and Labour Management: An International Comparison

Chapter

Jan 2007

This chapter begins with an explanation of the focus of the book: corporate governance and labour management. It then discusses national systems of corporate governance and labour management and mechanisms linking corporate governance and labour management. An overview of the chapters included in this volume is presented.

Board Characteristics and Audit Fees

Article

Sep 2002

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee "quality" are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

The role of corporate law in French corporate governance

Article

Jan 1998
CORNELL INT LAW J

James Fanto

The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey

Article

Mar 2010
J ECON LIT

This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Benjamin E. Hermalin and Michael S. Weisbach (2003) survey. The two questions most asked about boards are what determines their makeup and what determines their actions? These questions are fundamentally intertwined, which complicates the study of boards because makeup and actions are jointly endogenous. A focus of this survey is how the literature, theoretical as well as empirical, deals-or on occasions fails to deal-with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance.

Boards of Directors: A Review and Research Agenda

Article

Jun 1996

Jonathan Johnson

Boards of directors have been the subject of extensive conceptualization and empirical research. We review literature addressing boards of directors from the perspective of the control, service, and resource dependence roles that directors are hypothesized to fulfill, with particular focus on that research reported after the Zahra and Pearce (1989) compendium. We also discuss a number of methodological and conceptual elements which complicate the aggregation of research in this area of inquiry.

Strong Managers, Weak Owners.

Article

May 1995

Strategic Leadership: Top Executives and Their Effects on Organizations

Article

Jul 1997

The Impact of Board Composition and Ownership on Audit Quality: Evidence from Large UK Companies

Article

Dec 2000
Br Account Rev

Noel O'Sullivan

This paper examines the impact of board composition and ownership structure on audit quality in the UK prior to the adoption of the recommendations of the Committee on the Financial Aspects of Corporate Governance (5). In this study I use audit fees as a proxy for audit quality and seek to investigate whether the proportion of non-executives, the extent of managerial ownership or ownership by large blockholders influences the extent of auditing, and consequently, the audit fee. Utilizing data from a sample of 402 quoted companies I find that the proportion of non-executive directors has a significant positive impact on audit fees. I also find that audit fees are negatively related to the proportion of equity owned by executive directors. I find no evidence that ownership by large blockholders (institutional or otherwise) or CEO/chairman duality has a significant impact on audit fees. Overall, the findings suggest that non-executive directors encourage more intensive audits as a complement to their own monitoring role while the reduction in agency costs expected through significant managerial ownership results in a reduced need for intensive auditing.

The Pricing of Audit Services: Theory and Evidence

Article

Apr 1980

Dan A. Simunic

The Impact of Board Composition on Firms’ Critical Decisions: A Meta-Analytic Review

Article

Jun 2005

Yuval Deutsch

To date, the results of agency theory-based research exploring the impact of board composition on firms’ critical decisions are equivocal. Through meta-analyses, this study reveals systematic relationships between board composition and six of the seven critical decisions examined. Interestingly, the results provide little support to agency theory’s predictions on the impact of board composition on critical decisions that involve a potential conflict of interest between managers and shareholders. Implications for theory and practice are discussed.

Positive Accounting Theory: A Ten Year Perspective

Article

Jan 1990

This paper reviews and critiques the positive accounting literature following the publication of Watts and Zimmerman (1978, 1979), The 1978 paper helped generate the positive accounting literature that offers an explanation of accounting practice, suggests the importance of contracting costs, and has led to the discovery of some previously unknown empirical regularities. The 1979 paper produced a methodological debate that has not been very productive. This paper attempts to remove some common misconceptions about methodology that surfaced in that debate. It also suggests ways to improve positive research in accounting choice. The most important of these improvements is tighter links between the theory and the empirical tests. A second suggested improvement is the development of models that recognize the endogeneity among the variables in the regressions. A third improvement is reduction in measurement errors in both the dependent and independent variables in the regressions.

Greenmail: A Study of Board Performance in Corporate Governance

Article

Jun 1987

Rita Kosnik

Based on predictions from agency theory and a theory of managerial hegemony, this study compares the board structure of 53 companies that privately repurchased stock at a premium above the market place-i.e., paid greenmail-and 57 companies that resisted greenmail. The decision to pay greenmail is used as a proxy for the board's ineffectiveness, which is defined as the inability of the board's outside directors to prevent management from making decisions-such as paying greenmail-that are in conflict with stockholders' interests. Boards that effectively resisted greenmail were found to have more outside directors, more directors with executive experience, and more directors who represented interorganizational transactions than boards of companies that paid greenmail.

Effects of board composition and stock ownership on the adoption of “poison pills

Article

Dec 1992

The effect of board capital and CEO power on strategic change

Article

Nov 2010
STRATEGIC MANAGE J

We develop the construct of board capital, composed of the breadth and depth of directors' human and social capital, and explore how board capital affects strategic change. Building upon resource dependence theory, we submit that board capital breadth leads to more strategic change, while board capital depth leads to less. We also recognize CEO power as a moderator of these relationships. Our hypotheses are tested using a random sample of firms on the S&P 500. We find support for the effect of board capital on strategic change, and partial support for the moderating effect of CEO power. Copyright © 2010 John Wiley & Sons, Ltd.

Meta-analytic reviews of board composition, leadership structure, and financial performance

Article

Mar 1998
STRATEGIC MANAGE J

Careful review of extant research addressing the relationships between board composition, board leadership structure, and firm financial performance demonstrates little consistency in results. In general, neither board composition nor board leadership structure has been consistently linked to firm financial performance. In response to these findings, we provide meta-analyses of 54 empirical studies of board composition (159 samples, n = 40,160) and 31 empirical studies of board leadership structure (69 samples, n = 12,915) and their relationships to firm financial performance. These—and moderator analyses relying on firm size, the nature of the financial performance indicator, and various operationalizations of board composition—provide little evidence of systematic governance structure/financial performance relationships. © 1998 John Wiley & Sons, Ltd.

Board of Directors and Substitution Effects of Alternative Governance Mechanism

Article

Jan 1995
STRATEGIC MANAGE J

Research on the determinants and effects of various governance mechanisms typically assumes that these mechanisms operate independently. However, since a variety of mechanisms are used to achieve alignment of the interests of shareholders and managers, we propose that the level of a particular mechanism should be influenced by the levels of other mechanisms which simultaneously operate in the firm. We examine the substitution effects between alternative internal governance mechanisms for a sample of 81 bank holding companies in the postderegulation period. Specifically, we consider the relationship between monitoring by outside directors and the following mechanisms: monitoring by large outside shareholders, mutual monitoring by inside directors, and incentive effects of shareholdings by managers. Our results provide evidence consistent with the substitution hypothesis. We examine the implications of our findings for future research in the area of corporate governance.

Corporate Governance within the Context of Antitakeover Provisions

Article

May 1996
STRATEGIC MANAGE J

Chamu Sundaramurthy

This paper advances understanding of corporate governance relationships with a longitudinal study of multiple antitakeover options. Prior analyses have been primarily cross-sectional, focused exclusively on a single provision ignoring provisions which require subsequent stockholder approval. The current study uses agency theory, and broadens this perspective by examining the differential impact of institutional investors stockholding, managerial stock ownership, and corporate board characteristics on the rate of adoption of six provisions, including provisions which do and do not require stockholder approval. Results of hazard analyses of the rate of amendment adoption of 185 firms between 1984 and 1988 indicate that the impact of governance variables on antitakeover provisions differ depending on whether these actions require stockholder approval or not. The pattern of differences indicates that institutional investors use their voting power when they are given an opportunity to vote and that substitution between direct shareholder control and managerial stock ownership exists.

Board Characteristics and Audit Fees

Article

Jun 2002

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance which requires more audit work) than the Big 6 audit firm normally would provide. The audit fee would increase as the auditor's additional costs are passed on to the client, such that we would expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee "quality" are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

Corporate Governance in Post-Privatized Slovenia

Article

Dec 1999

The basic building blocks of post-privatization Slovenian corporate governance differ rather dramatically from those of the United States. Slovene corporations are characterized by highly concentrated ownership dominated by state-controlled funds and other institutional investors. In addition, Slovene corporation law provides for a two-tier board of directors (similar to the German codetermination system) in which employees are entitled to representation on both the management and supervisory boards. This article provides an analysis of these features, exploring possible reforms in Slovenian law that might enhance the effectiveness of Slovene boards of directors.

Dividends and Expropriation

Article

Jul 2000

In Western Europe and East Asia, capital markets require higher dividends from corporations tightly affiliated (at the 20% level of control) to a group and, within a group, from corporations whose controlling shareholder has a lower ratio O/C of ownership to control rights. For loosely-affiliated corporations (whose controlling shareholder holds between 10% and 20% of control rights), dividends are positively related to O/C, reflecting expropriation not contained by capital markets. Such corporations comprise 2.94% of European corporations, but 15.44 % of Asian corporations. In our 9 Asian economies, the 11 largest groups at the 10% level comprise 53.75% of all corporations and 84.58% of loosely-affiliated corporations, so most expropriation occurs here. Dividend are higher in Europe than in Asia; having multiple large shareholders increases dividends in Europe but decreases them in Asia.

Board Structure, Antitakover Provisions and Stockholder Wealth

Article

Nov 1996
STRATEGIC MANAGE J

This paper's regression analyses from a sample of 261 firms that adopted 486 antitakeover provisions (supermajority, classified boards, fair-price, reduction in cumulative voting, anti-greenmail and poision pills) in the 1984-1988 period indicate that the negative market reactions to antitakeover provisions vary depending on firm's board structures. This paper's empirical evidence indicates that while separating the positions of CEO and chairperson of the board reduces the negative effect, increased outsider representation increases negative market reactions.

Commanding Board of Director Attention: Investigating How Organizational Performance and CEO Duality Affect Board Members Attention to Monitoring

Article

Sep 2010

Foundational RBV work suggests that firms possess capabilities that represent strengths and others that represent weaknesses. In contrast, contemporary research has examined capability strengths while largely ignoring weaknesses. Addressing this oversight, we examine the direct and integrated effects of sets of capability strengths and capability weaknesses on competitive advantage and its empirical correlate - relative performance. Additionally, we explore how environmental and firm-specific factors influence change in these drivers of competitive advantage over time. Results suggest that weakness sets have a negative effect on relative performance, while strength sets have an increasingly positive effect. The integrative effects of strength and weakness sets affect relative performance in a complex manner. For example, while high strength/low weakness firms perform at high levels, firms integrating high strength with high weakness perform well, but experience considerably more variance in their realized outcomes. Lastly, we find that the strength and weakness sets change significantly over time in markets where competition is more intense, thereby undermining the durability of competitive advantage. Our theory and results indicate that achieving temporary advantage is more difficult than previously thought and that the erosion of advantage occurs routinely as a result of dynamic and interactive rivalry.

Differences in Managerial Discretion across Countries: How Nation-Level Institutions Affect the Degree to Which CEOs Matter

Article

Aug 2011
STRATEGIC MANAGE J

The concept of managerial discretion provides a theoretical fulcrum for resolving the debate about whether chief executive officers (CEOs) have much influence over company outcomes. In this paper, we operationalize and further develop the construct of managerial discretion at the national level. In an empirical examination of 15 countries, we find that certain informal and formal national institutions—individualism, tolerance of uncertainty, cultural looseness, dispersed firm ownership, a common-law legal origin, and employer flexibility—are associated with the degree of managerial discretion available to CEOs of public firms in a country. In turn, we show that country-level managerial discretion is associated with how much impact CEOs have on the performance of their firms. We also find that discretion mediates the relationship between national institutions and CEO effects on firm performance. Finally, we discuss two inductively derived institutional themes: autonomy orientation and risk orientation. Copyright © 2011 John Wiley & Sons, Ltd.

An Empirical Investigation of Audit Fees, Nonaudit Fees, and Audit Committees*

Article

Jun 2003
CONTEMP ACCOUNT RES

This study examines the association between audit committee characteristics and the ratio of nonaudit service (NAS) fees to audit fees, using data gathered under the Securities and Exchange Commission's (SEC's) fee disclosure rules. Issues related to NAS fees have been of concern to practitioners, regulators, and academics for a number of years. Prior research suggests that audit committees possessing certain characteristics are important participants in the process of managing the client-auditor relationship. We hypothesize that audit committees that are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. Our analysis using a sample of 538 firms indicates that audit committees comprised solely of independent directors meeting at least four times annually are significantly and negatively associated with the NAS fee ratio. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease the NAS fee ratio.

Corporate Governance and Director Accountability: An Institutional Comparative Perspective

Article

Mar 2005
BRIT J MANAGE

Ruth V. Aguilera

This paper examines the role of boards of directors in light of institutional contingencies and recent best practice governance guidelines and regulation such as the United Kingdom Higgs Review and the United States Sarbanes-Oxley Act 2002. Particular attention is paid to discussing the role of independent directors across countries, and the implications for corporate governance innovation. It concludes by posing questions about recent corporate governance transformations and providing suggestions for future research.

Determinants of Board Size and Composition: A Theory of Corporate Boards

Article

Jun 2005
J FINANC QUANT ANAL

Charu G. Raheja

This paper models the interaction of firm insiders and outsiders on a corporate board and addresses the question of the ideal size and composition the board board. In the model, the board is responsible for monitoring projects and making CEO succession decisions. Inside directors are better informed regarding the quality of firm investment projects, but outsiders can use CEO succession to motivate insiders to reveal their superior information and help the board in implementing higher value projects. The optimal board structure is determined by the tradeoff between maximizing the incentive for insiders to reveal their private information, minimizing the cost to outsiders to verify projects, and maximizing outsiders' ability to reject inferior projects. I show that optimal board size and composition are a function of the directors' and firm's characteristics. I also develop testable implications for the cross-sectional variations in the optimal board structure across firms.

Blockholder Ownership and Market Liquidity

Article

Dec 2000
J FINANC QUANT ANAL

This paper examines the association between block ownership and market liquidity. Blockholders are believed to have access to private, value-relevant information via their roles as monitors of firms' operations. consistent with this, we find that firms with greater blockholder ownership, either by managers or external entities, have larger quoted spreads, effective spreads, adverse selection spread components, and smaller quoted depths.

Corporate Restructuring During Performance Declines in Japan

Article

Oct 1996
J FINANC ECON

This paper documents the restructuring of 92 Japanese corporations that experienced a substantial decline in operating performance between 1986 and 1990. These firms implement a number of downsizing measures such as asset sales, plant closures, and employee layoffs. Firms also expand and diversify, and often restructure their internal operations. Compared to US firms with a similar decline in performance, however, Japanese firms are less likely to downsize, and layoffs affect a smaller fraction of their workforce. The frequency of asset downsizing and layoffs in Japanese firms increases with the ownership by the firm's main bank and other blockholders. Blockholders also increase the probability of management turnover, outside director removals and outside director additions, but decrease the likelihood of acquisitions. We document improvements in operating performance following downsizing actions in Japan.

Executive Compensation Structure, Ownership, and Firm Performance

Article

Feb 1995

Hamid Mehran

An examination of the executive compensation structure of 153 randomly-selected manufacturing firms in 1979–1980 provides evidence supporting advocates of incentive compensation, and also suggests that the form rather than the level of compensation is what motivates managers to increase firm value. Firm performance is positively related to the percentage of equity held by managers and to the percentage of their compensation that is equity-based. Moreover, equity-based compensation is used more extensively in firms with more outside directors. Finally, firms in which a higher percentage of the shares are held by insiders or outside blockholders use less equity-based compensation.

Appointments of Outsiders to Japanese Boards Determinants and Implications for Managers

Article

Feb 1994

This paper investigates the determinants of appointments of outsiders — directors previously employed by banks (bank directors) or by other nonfinancial firms (corporate directors) — to the boards of large nonfinancial Japanese corporations. Such appointments increase with poor stock performance; those of bank directors also increase with earnings losses. Turnover of incumbent top executives increases substantially in the year of both types of outside appointments. We perform a similar analysis for outside appointments in large U.S. firms and find different patterns. We conclude that banks and corporate shareholders play an important monitoring and disciplinary role in Japan.

An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities

Article

Jun 2008

This paper develops an organizational approach to corporate governance and assesses the effectiveness of corporate governance and implications for policy. Most corporate governance research focuses on a universal link between corporate governance practices (e.g. shareholder activism, board independence) and performance outcomes, but neglects how interdependences between the organization and diverse environments lead to variations in the effectiveness of different corporate governance practices. In contrast to such 'closed systems' approaches, we propose a framework based on 'open systems' approaches to organizations which examines these organizational interdependencies in terms of the costs, contingencies and complementarities of different corporate governance practices. These three sets of organizational factors are useful in analyzing the effectiveness of corporate governance in diverse organizational environments. We also explore how costs, contingencies and complementarities impact approaches to policy such as 'soft-law' or 'hard law', and their effectiveness in different contexts.

Foreign Ownership and long-term Survival

Article

Jan 2006
STRATEGIC MANAGE J

Does foreign ownership enhance or decrease a firm’s chances of survival? Over the 100 year period 1895-2001 this paper compares the survival of foreign subsidiaries in Denmark to a control sample matched by industry and firm size. We find that foreign-owned companies have higher survival probability. On average exit risk for domestic companies is 2.3 times higher than for foreign companies. First movers like Siemens, Philips, Kodak, Ford, GM or Goodyear have been active in the country for almost a century. Relative foreign survival increases with company age. However, the foreign survival advantage appears to be eroded by globalization, it decreases over time and disappears at the end of the century.

The Role of Debt in Interactive Corporate Governance

Article

Jul 1995
CALIF LAW REV

Most of the corporate governance literature rests on a premise that the interests of various stakeholder groups conflict and that managerial loyalty is more likely to be captured by shareholders than any other constituency. Yet, stakeholder interests do converge in the objective of controlling managerial slack and non-equity constituents have substantial influence over firm decisions. Although the study of governance has taken early steps to abandon its preoccupation with equity-centered solutions and identify interdependencies existing among a broader range of stakeholders, governance scholars have missed an important element of interactivity. A stakeholder reacts to the actions of others and thereby contributes to the collective interest in controlling slack. Each stakeholder has a window on the firm through which it can acquire some type of information at lower cost than other stakeholders. When a stakeholder detects an unsatisfactory state of affairs, it reacts by choosing to exit or exercise voice. The exercise of either the voice or exit option may pressure management to correct the unsatisfactory state of slack. More to the point, however, a stakeholder's exit bears important information for other stakeholders, at least some of whom may be better placed to take action that corrects the slack. This Article describes an interactive system of corporate governance and provides a stylized theory of the role of lenders within this system. The divergence in the interests of these lenders and other stakeholders does not preclude interactive governance, but it does threaten to reduce the net benefits from the process. Therefore, the authors identify a number of legal and institutional mechanisms that help to channel the efforts of the lender toward the common goal of containing and correcting managerial slack. The interactive perspective thus permits new explanations for phenomena such as debt covenants, bankruptcy preference rules and lender liability laws. For example, the definition of debt covenants and events of default in lending agreements raise the likelihood that the lender exit is prompted by slack rather than lender opportunism and thereby enhances the informational value of the exit. Bankruptcy preference rules encourage early exit before the firm becomes insolvent, thereby enabling remaining stakeholders to take action before the firm's condition becomes irreparable. Thus, debt covenants and preference rules provide a window that increases the value of lender exit in prompting the correction of managerial slack.

Directors' Multiple Identities, Identification, and Board Monitoring and Resource Provision

Article

Jun 2008

Scholars and practitioners are interested in board effectiveness, yet we know relatively little about directors' engagement in the boardroom. We integrate identity theory and social identity theory research with literature on board monitoring and resource provision to model how directors' multiple identities affect their behavior. We propose that directors' strength of identification with multiple identities affects the extent to which they engage in monitoring and resource provision. We discuss implications for corporate governance research and practice.

The Structure of Ownership

Article

Feb 1985

External Auditors, Audit Committees and Earnings Management in France

Article

Feb 2007
EUR ACCOUNT REV

We investigate the effect of various audit quality dimensions (i.e. auditor reputation and tenure, audit committee existence and independence) on earnings management in France. We thus contribute to the empirical audit quality literature in a Continental European environment that markedly differs from the USA in terms of auditing and corporate governance. The main findings are that: (1) the presence of an audit committee (but not the committee's independence) curbs upward earnings management; and (2) the presence of a Big Five auditor makes no difference regarding earnings management activities. Implications of these findings are discussed with regard to the specificities of the French auditing and governance settings. In particular, although the audit committee acts as a device to control the more egregious (i.e. income-increasing) forms of earnings management, the monitoring incentive of outside directors may be hampered by the collective board responsibility for financial reporting quality. Second, the lack of differentiation among Big Five auditors in terms of accounting conservatism is consistent with the lower litigation risk offered by the French Civil Code (vs. the US Common Law system), which is likely to eliminate the deep pockets incentive for investors.

When Does Ownership Matter? Board Characteristics and Behavior

Abstract

No full-text available

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