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Abstract

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.

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... les études montrent que le développement des CG et leur efficacité dépendent de la spécificité du contexte institutionnel de chaque pays. Cette spécificité est représentée par les différents facteurs culturels, économiques, politiques et historiques qui ont participé à développer le système de gouvernance de chaque pays (Aguilera et Cuervo-Cazurra, 2009;Desender et al., 2013;Enrione et al., 2006;Wirtz, 2008b, Cuomo et al., 2015. ...
... Dans un contexte d'asymétrie d'information, la mise en conformité au CG constitue un mécanisme de dédouanement de la part des dirigeants et du conseil d'administration. En outre, plusieurs auteurs considèrent que la mise en place d'un ensemble de mécanismes de gouvernance est plus efficace qu'un seul mécanisme (Desender et al, 2013;Rediker et Seth, 1995). ...
... La mise en place de mécanismes de gouvernance constitue en théorie un moyen de contrôler les dirigeants et de les inciter à agir dans l'intérêt des actionnaires. Plusieurs auteurs considèrent que la mise en place d'un ensemble de mécanismes de gouvernance est plus efficace qu'un seul mécanisme (Desender et al., 2013;Rediker et Seth, 1995). La mise en place de codes de gouvernance, regroupant un ensemble de recommandations relatives aux mécanismes susceptibles de discipliner les dirigeants, présente donc un intérêt certain afin d'améliorer les pratiques de gouvernance des sociétés. ...
Thesis
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.
... We embed our model in the context of the study of corporatization that enables minority shareholdings by other enterprises. Therefore, ownership structure serves as an indicator of board capital/composition (Li, 1994;Mizruchi, 1996) while also directly predicting board behavior (Desender et al., 2013;Hideto Dato et al., 2020). The corresponding theoretical model is shown in Figure 5, which we discuss in detail directly below. ...
... Citizens' monitoring activities are inefficient because they have weak property rights and high transaction costs (Blankart, 1983;Davies, 1971). The issue of monitoring is a concern because citizens are reliant on the monitoring activity of the board owing to dispersed ownership as the citizens are the ultimate owners of the public enterprise (Blankart, 1983;Desender et al., 2013). Referring to capacity problems, local governmental owners might assign more ambiguous and potentially conflicting objectives than shareholders like hub firms (Shleifer & Vishny, 1997). ...
... Importantly, and mirroring some identified gaps in academic literature (Boivie et al., 2016), the above guides pay little attention to multidimensional board behavior beyond common board practices and legal duties (such as networking activity), even though this multidimensional perspective might help to achieve the BoD's goal of acting in the best interest of their public enterprise. Furthermore, local municipal BoDs still seem to be less involved in strategy control than enterprises holding minority shares, despite the former's board activity having great societal and democratic relevance and citizens relying on the monitoring activity of the board because of those citizens' dispersed ownership (Desender et al., 2013). ...
Thesis
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 context—German 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 enterprise’s 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 study’s 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 enterprise’s 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.
... In such an environment, major shareholders seek to expropriate the wealth of minority shareholders through obtaining incentives and benefits of their own. A stream of previous studies on CG indicates that the efficacy of CG mechanisms is influenced by the form of ownership structure of companies (Desender et al., 2013), especially in developing countries where family ownership (hereafter, FO) is more prevalent and legal systems to protect the rights of minority shareholders are weaker (Idris et al., 2018a). ...
... Moreover, another series of studies suggests that the effectiveness of CG mechanisms depends on the corporate ownership structure (Al-Ebel, 2013;Desender et al., 2013;Hashim & Amrah, 2016). Especially, since the problem of agency of the second type recently raised concern in many countries, especially in emerging markets, where the concentration of ownership is more prevalent and legal systems to protect the rights of weaker minority owners (Abdullatif et al., 2015). ...
... Therefore, the effectiveness of the AC depends on its characteristics in terms of the independence, size, financial expertise, and the number of its meetings in improving the performance of companies (Zabri et al., 2016). In addition, the effectiveness of CG mechanisms can also be affected by the form of ownership structure (Desender et al., 2013;Hashim and Amrah, 2016). Previous studies have discussed many of the characteristics of the AC that have an effective influence on the firm's performance. ...
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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.
... We embed our model in the context of the study of corporatization that enables minority shareholdings by other enterprises. Therefore, ownership structure serves as an indicator of board capital/composition (Li, 1994;Mizruchi, 1996) while also directly predicting board behavior (Desender et al., 2013;Hideto Dato et al., 2020). The corresponding theoretical model is shown in Fig. 1, which we discuss in detail directly below. ...
... Citizens' monitoring activities are inefficient because they have weak property rights and high transaction costs (Blankart, 1983;Davies, 1971). The issue of monitoring is a concern because citizens are reliant on the monitoring activity of the board owing to dispersed ownership, as the citizens are the ultimate owners of the public enterprise (Blankart, 1983;Desender et al., 2013). Referring to capacity problems, local governmental owners might assign more ambiguous and potentially conflicting objectives than shareholders like hub firms (Shleifer & Vishny, 1997). ...
... Importantly, and mirroring some identified gaps in the academic literature (Boivie et al., 2016), the above guides pay little attention to multidimensional board behavior beyond common board practices and legal duties (such as networking activity), even though this multidimensional perspective might help to achieve the BoD's goal of acting in the best interest of their public enterprise. Furthermore, local municipal BoDs still seem to be less involved in strategy control than enterprises holding minority shares, despite the former's board activity having great societal and democratic relevance and citizens relying on the monitoring activity of the board because of those citizens' dispersed ownership (Desender et al., 2013). In order to increase citizens' involvement and incentives to monitor politicians on the board, the implementation of innovative, digitalized ways of information and participation might be fruitful (Calabrò et al., 2013). ...
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Public enterprises find themselves in increasingly competitive markets, a situation that makes having an entrepreneurial orientation (EO) an urgent need, given that EO is an indispensable driver of performance. Research describes politicians delaying the strategic change of public enterprises when serving as board members, but empirical evidence of the impact of board behavior on EO in public enterprises is lacking. We draw on stakeholder-agency theory (SAT) and resource dependence theory (RDT) and use structural equation modeling (SEM) to investigate survey data collected from 110 German energy suppliers that are majority government owned. Results indicate that board strategy control and board networking do not seem to predict EO on first sight. Closer analysis reveals a board networking-EO relationship depending on ownership structure. Remarkably, we find that it is not the usually suspected local municipal owner who hinders EO in our sample organizations but minority shareholders engaging in board networking activities. The results shed light on the intersection of governance and entrepreneurship with special reference to the fine-grained conceptualization of RDT.
... In sum, as argued by AlQadasi and Abidin (2018) and Desender et al. (2013), the ownership structure should be considered in studying the effectiveness of corporate governance mechanisms. In concentrated ownership settings, large shareholders play a major role in the composition of the board of directors which may be reflected in the quality of selected external auditors. ...
... As a result, independent directors are closely tied with the controlling shareholders (Zhou et al., 2017). In addition, the type or nature of shareholders may be a relevant issue when deciding board of directors' independence since different types of owners might pursue different strategic objectives and, thus, they can be expected to exert diverse demands from boards and disciplinary effects on managers (Desender et al., 2013). Perez-Calero et al. (2019) find that ownership concentration has a significant negative relation with board independence when firms are under managerial or family control. ...
... Some studies suggest a favorable effect of large shareholders on the monitoring effectiveness of the board (e.g. Desender et al., 2013;Elsayed and Wahba, 2013). By contrast, other studies support a negative effect (e.g. ...
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Purpose This paper investigates the role of board independence in determining the relationship between firm ownership and auditor choice. Design/methodology/approach The research uses a logistic regression to test the direct and indirect effects of ownership structure on the decision to hire a high-quality (Big 4) audit firm. The sample consists of 207 non-financial firms listed on the Gulf Cooperation Council (GCC) countries stock markets between 2009 and 2016. Findings Empirical findings show that family ownership is associated with a negative and significant coefficient suggesting that an increase in family ownership decreases the likelihood that the firm will employ a Big 4 auditor. This finding suggests that family owners are reluctant to impose external monitoring. Furthermore, we find a positive relationship between institutional ownership and auditor choice supporting the conjecture that institutional investors are more likely to choose a Big 4 auditor. The results also reveal that the effects of family and institutional ownership on auditor choice are partially mediated by independent directors. Practical implications This study has important implications for GCC economies whose policymakers and regulators may need to address the conflict between controlling and non-controlling shareholders. It provides guidance for firms in the construction and implementation of their own corporate governance policies. Furthermore, the study findings may be useful to investors, assisting them in making better informed decisions and aids other interested parties in gaining a better understanding of the role played by ownership structure in the quality of auditors. Finally, the paper highlights the importance of the composition of the board of directors in increasing the likelihood of hiring a high-quality audit firm. Originality/value The main contribution of the present paper is to examine the board composition as a potential mediating variable between ownership structure and auditor choice. Moreover, it highlights the issue of improving governance mechanisms.
... As a result of this trend, the corporate governance field is challenging the assumption of owners as a homogeneous group by bringing forward owners' diversity in terms of both incentives and capacity to influence their corporations (Aguilera & Crespi-Cladera, 2016;Desender, Aguilera, Crespi, & García-cestona, 2013). ...
... France (Desender et al., 2013). Because of the shared objectives and long-term strategic orientation, corporate owners also invest in obtaining firm-specific knowledge, which allows them to monitor the management and provide resources for focal firms (Desender et al., 2013). ...
... France (Desender et al., 2013). Because of the shared objectives and long-term strategic orientation, corporate owners also invest in obtaining firm-specific knowledge, which allows them to monitor the management and provide resources for focal firms (Desender et al., 2013). ...
Article
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Manuscript type: Review Research Issue: In this comprehensive literature review, we synthesize and analyze the current state of academic research regarding the relatively understudied relationship between the type of owners and board governance. Research Findings: Our review of the existing literature at the intersection of ownership and board governance research discusses how six distinct ownership types—pertaining to family, lone founder, corporation, institutional investor, state, and venture capitalist—shape board governance, defined as board structure, composition, and processes. We also uncover the influence of ownership type on board functional performance (i.e., monitoring, resource provision, and strategic involvement), and the implications of these owner-board relationships for a variety of firm outcomes (related to performance and compliance). Theoretical Implications: We present identifiable patterns in board governance and functional performance associated with each ownership type, and their respective implications for a wide range of firm outcomes. We then propose seven core emerging themes that deserve further scholarly attention. Practical Implications: Our analysis cautions against the application of the “one-size-fits-all” best-practices approach in board governance advocated by policy makers, scholars, and corporate governance activists, and underscores the need to consider the contingent effects of different owners’ behaviors and interests in shaping and assessing board governance.
... Management attempt to mitigate the associated agency costs by establishing "a series of mechanisms that seek to reconcile the interests of shareholders and managers" (O'Sullivan, 2000: 399). These mechanisms include external (or statutory) auditing where independent auditors enhance the credibility of a company's financial statements (Agarwal and Chadha, 2005;Desender et al., 2013;Desender et al., 2016). Other mechanisms pertain to the ways in which companies are directed and controlled (O'Sullivan, 2000;Larcker and Richardson, 2004), including incentive effects of executive share ownership (Jensen and Meckling, 1976), and the review of financial reporting and the engagement of the external auditor by the audit committee (Krishnan et al., 2011;Krishnan, 2005). ...
... Other mechanisms pertain to the ways in which companies are directed and controlled (O'Sullivan, 2000;Larcker and Richardson, 2004), including incentive effects of executive share ownership (Jensen and Meckling, 1976), and the review of financial reporting and the engagement of the external auditor by the audit committee (Krishnan et al., 2011;Krishnan, 2005). Together, these mechanisms constitute key instruments for protecting the interests of shareholders (Desender et al., 2013). ...
... This is achieved by enhancing the oversight of the financial reporting processes, including the review of the audit process and internal control(Hay et al., 2008;Desender et al., 2013). ...
Article
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We extend prior research on corporate governance and non-audit services (NAS) by distinguishing between the management entrenchment region of management ownership and regions in which the interests of management and shareholders converge. Management entrenchment and convergence-of-interests regions were estimated for our sample of 5198 Australian firm-years. NAS is negatively (positively) associated with management ownership in the convergence-of-interests (entrenchment) regions. However, using a sub-sample based on firms that have audit committees, we find the association between NAS and management ownership is confined to the entrenchment region, while audit committee strength is negatively associated with NAS fees across all management ownership regions. JEL Classification: M42, M48
... In this vein some scholars explored the impact of family involvement on the financial performance of family firms (e.g., Sacristán-Navarro et al. 2011;Audretsch et al. 2013), the risk of business failure (Revilla et al. 2016), or entrepreneurial orientation (Bauweraerts and Colot 2017). The peculiarities of the entanglement of ownership and management in family firms are also of particular interest for research on corporate governance (Debicki et al. 2009;Desender et al. 2013;Sherlock and Marshall 2019). Due to the occupation of multiple positions and the special relationship of actors within the firm, family firms offer a unique organizational setting to analyze the way boards of family firms work (Huse 2005). ...
... While we know what roles the boards of directors usually perform, such as monitoring management and providing advice (e.g., Corbetta and Salvato 2004;Finkelstein et al. 2009;Hillman et al. 2000;Hillman and Dalziel 2003;Zattoni et al. 2015), research just started to draw attention on the relationship between family involvement and the performance of certain supervisory board roles. Desender et al. (2013), e.g., showed that firm ownership of family members has an impact on the magnitude of external audit fees contracted by the board. Songini and Gnan (2015) revealed the negative relationship between family governance and agency cost control mechanisms as well as the positive relationship between family management and agency cost control mechanisms (measured through six items as dummy variables). ...
... This increases the risk of actively K involved family branches attempting to abuse their control at the expense of passive family branches. In this line, Desender et al. (2013) find a positive relationship between dispersed firm ownership and the monitoring function of boards (measured as external auditing fees contracted by the board). Corten et al. (2017) show that, if the level of family cohesion declines (which is the case with an increasing number of owning family branches), auditing demand is lower, when boards of directors are effective in their monitoring tasks. ...
Article
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This paper examines how the involvement of family members in family firms affects the roles of supervisory boards in two-tier board systems. Taking an agency and resource-based perspective, we argue that the occurrence of monitoring and advisory tasks of the board depends on the entanglement of family management and family ownership. This entanglement creates special governance requirements for family firms in two-tier board systems. We use a unique dataset of 186 German family firm observations to show that family involvement in management as well as a high family ownership reduces the occurrence of the monitoring tasks that the supervisory board performs. Moreover, we show that a growing number of owning family branches increases the monitoring tasks. We also provide evidence that family involvement increases the occurrence of the advisory tasks in relation to the monitoring ones.
... For instance and generally, there is concentrated shareholding structure often dominated by the state and powerful families, especially royal families (Wahdan et al., 2005;Al-Ajmi, 2009;Samaha & Hegazy, 2010;Mohamed & Habib, 2013;Habbash & Alghamdi, 2017;Ben-Hassoun et al., 2018). External auditing mitigates agency problems by verifying the quality of the financial statements, which reduces information asymmetry and thereby ensuring that the interests of other external shareholders are protected (Francis & Wang, 2008;Desender et al., 2013;Barroso et al., 2018). ...
... However, government agencies can exercise a substantial influence over government-controlled firms (mainly through additional board members), and can readily have access to the firm's private information (Chan et al., 2006;Barroso et al., 2018). Accordingly, they tend to focus more on direct monitoring (Desender et al., 2013). Therefore, firms with high government shareholding have less incentive to provide highly credible financial reports to monitor management and reduce information asymmetries, and thus are less likely to choose high-quality audit firms, and thereby preferring to pay lower fees (Lin & Liu, 2010;Ben-Hassoun et al., 2018;Barroso et al., 2018). ...
... Furthermore, they have access to internal/private information because family members participate in the management or serve as directors on the board (Chen et al., 2008). Family shareholders with private information tend to provide more direct monitoring through appointing additional board members (Desender et al., 2013;Ho & Kang, 2013). Therefore, they have lower incentives to demand external auditing services/ hiring top-tier auditors to monitor managers since they also bear most of the costs (Ho & Kang, 2013;Barroso et al., 2018). ...
... Ownership structures (e.g., dispersed and concentrated ownerships) have a substitution or complementary influence on board composition in monitoring management activities via engagement with external monitoring mechanisms, such as audit quality (Desender et al., 2013). The agency and resource dependence theories have been used to illustrate the board's incentives and ability to oversee management's actions and reduce agency conflicts between majority shareholders and minority shareholders. ...
... The Chi-square test shows that WEDGE is a significant determinant of client's demand for high audit quality. Controlling shareholders might get strong incentives to expropriate minority shareholders' wealth as a consequence of their negative entrenchment effect (Desender et al., 2013). Controlling shareholders possess adequate incentives and ability to monitor management directly instead of depending on external monitoring and hold them accountable for activities not aligned with their interests (Bohinc & Bainbridge, 2001). ...
... This argument is aligned with that documented by Wu, Chen, & Lee (2016) that wedge has a negative impact on clients' incentive to demand high quality audit services. Desender et al. (2013) report that there is a substitution impact between internal corporate governance mechanisms and audit fees in the existence of high concentrated ownership. The result supports Hypothesis 12e. ...
... Managerial ownership will align management and shareholders interest because management concurrently the manager and owner so he will feel the impact of the decisions taken. (Pambudi & Ghozali, 2013) Referred to agency theory, managerial ownership give contribution in resolving agency conflict and reducing agency cost (Desender & Aguilera, 2012). The alignment of interests between managers and shareholders is explained by the convergence of interests hypothesis (Morck et al., 1988). ...
... Management will restrict behavior related to morale and will perform optimally. This can be seen on the presentation of financial reporting (Desender & Aguilera, 2012). The quality financial statement could reduce agency theory in the form of audit fee. ...
Article
This study aims to examine the effect of Good Corporate Governance, CEO ethnicity, and Audit Fees in Manufacturing Companies listed on Indonesia Stock Exchange within the period of 2014-2018. The independent variable used in this study is Good Corporate Governance, which is represented by the variable of the Independent Commissioner, Audit Committee, Managerial Ownership, Institutional Ownership and CEO Ethnicity, while the dependent variable used is Audit Fee. This quantitative research employed the descriptive research method. The population in this study included manufacturing companies listed on the Indonesia Stock Exchange (IDX). The sampling technique used in this research is purposive sampling with certain criteria and 220 data were obtained from observations within the period of 2014-2018. The data were analyzed using multiple regression analysis with Statistical Package for the Social Sciences (SPSS) software by performing calculations and descriptive statistical tests, classical assumption tests, partial tests and determination coefficient tests.The results of this study indicate that Independent Commisioner, Audit Committee, Managerial Ownership, and CEO Ethnicity have a significantly positive impact on Audit Fees.
... For example, the role of the board in terms of monitoring versus advice and the relevance of board committees is likely to be contextdependent. In particular, the importance of the monitoring role is expected to be influenced by the distribution of power among the stakeholders and their individual incentives (Desender et al., 2013). When the ownership is diffuse, the monitoring role of the board is likely to be more important because it is difficult for the dispersed shareholders to coordinate their monitoring activities À À À and is also not worthwhile for any individual institution to monitor the company on a continuing basis (Aguilera, 2005). ...
... Large shareholders might have access to private value-relevant information (Heflin & Shaw, 2000), engage with management in setting corporate policy (Denis & McConnell, 2003), have some ability to influence proxy voting, and may also receive special attention from management (Useem, 1996). Because blockholders have both the incentive and the power to hold management accountable for actions that do not promote shareholder value, the monitoring role of the board is, in such a situation, considered to be less important (La Porta et al., 1998;Aguilera, 2005;Desender et al., 2013). Future research on boards and board committees could therefore examine the importance of the institutional context and the interaction with other corporate governance mechanisms in the effectiveness of the monitoring and advisory roles. ...
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This paper draws on the articles in the Forum on Corporate Governance to discuss how corporate governance and accounting research complement each other well in explaining how companies are governed as well as properly managed from an accounting point of view. We put special attention to the cross-national differences in both corporate governance systems and accounting practice and how that affect multiple organizational outcomes ranging from financial performance to corporate social performance and reporting quality.
... Another expected reason for the variance in evidence is the significant impact of the company's institutional structure on the effectiveness of the board of directors (Desender, 2009;Desender et al., 2013). In other words, the board's monitoring role is likely to be efficient if the board members are not affiliated with or subjected to the controlling shareholder (Grosman and Wright, 2015). ...
... When comparing listed and non-listed companies, the results shown in (Table 5) indicate that listed companies were more sensitive to the changes in corporate governance mechanisms than non-listed companies. This result might be explained, according to (Desender et al. 2013), by the agency theory that clarifies how large controlling shareholders, with none or low managerial ownership, solve the managers-shareholders conflicts as they have both ability and incentives to monitor management team themselves, rather than using the board to add an additional layer of monitoring, This is clear from Table 5, in which the ratio of major shareholders of non-listed companies is 84.79%, compared to listed companies, 48.20%., while the executive ownership for listed companies is around 15.04% However, as soon as the managerial ownership is started to increase, the strength of this relationship will decline by what it is called 'entrenchment effect', in which managers are more likely to reduce the level of information about their governance practices, and thus, shareholders find it hard to control such managers' activities themselves (Hussainey and Al-Najjar, 2012). As can be seen from Table 5, in listed companies, board size, managerial ownership, and main shareholder with more than 50% ratio had a positive effect on firm performance, measured by either return on equity, revenue growth, or adjusted combined ratio, while the board non-duality had a negative effect on the adjusted combined ratio only. ...
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.
... When comparing listed and non-listed companies, the results shown in (Table 5) indicate that listed companies were more sensitive to the changes in corporate governance mechanisms than non-listed companies. This result might be explained, according to (Desender et al. 2013), by the agency theory that clarifies how large controlling shareholders, with none or low managerial ownership, solve the managers-shareholders conflicts as they have both ability and incentives to monitor management team themselves, rather than using the board to add an additional layer of monitoring, This is clear from Table 5, in which the ratio of major shareholders of non-listed companies is 84.79%, compared to listed companies, 48.20%., while the executive ownership for listed companies is around 15.04% However, as soon as the managerial ownership is started to increase, the strength of this relationship will decline by what it is called 'entrenchment effect', in which managers are more likely to reduce the level of information about their governance practices, and thus, shareholders find it hard to control such managers' activities themselves (Hussainey and Al-Najjar, 2012). As can be seen from Table 5, in listed companies, board size, managerial ownership, and main shareholder with more than 50% ratio had a positive effect on firm performance, measured by either return on equity, revenue growth, or adjusted combined ratio, while the board non-duality had a negative effect on the adjusted combined ratio only. ...
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.
... On this way, the ability of the governance factors to monitor managerial behaviors depends on the business ownership structure because the interaction between the governance factors and shareholders can clarify the disparity between effectiveness and monitoring patterns (Desender et al., 2013). For instance, if financial statements are not a faithful representation of the actual and current situations of companies controlled and dominated by a large number of shareholders, regardless of whether the board is effective and active or not, this situation can exist because the members of the board may be selected and appointed as legal fiction (Kosnik, 1987). ...
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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.
... Our perspective was consistent with other studies that also promoted the bundling approach (see e.g. Desender et al., 2013;Ward, Brown and Rodriguez, 2009). ...
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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.
... In fact, managers are always willing to disclose information and useful news concerning their performance, so they need some mechanisms to ensure related information's precision and reliability. One of these accreditation mechanisms is the high quality of audit (Farooq et al., 2018;Jizi and Nehme, 2018;Desender et al., 2013). According to agency theory, the independent audit as a controlling factor lessens agency costs by constraining managers' manipulation of accounting information (Fama, 1980;Jensen and Meckling, 1976). ...
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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).
... Generally, the management literature indicates that corporate boards' monitoring and advice-giving affect corporations' strategic resource allocations and prioritization of financial objectives (Adams, 2017;Croci, 2018;Desender et al., 2013;Haynes and Hillman, 2010). ...
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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.
... Additionally, the ownership structure is also considered to be an important bundle of comparative corporate governance (Aguilera et al., 2012). Several studies argue that ownership structure needs to be considered when investigating the governance practices across countries (Desender et al., 2013;Judge, 2011). A few studies have examined the influence of institutional investors on a number of governance outcomes such as CEO compensation schemes (Croci et al., 2012) and voluntary disclosure practices (Chen et al., 2008), in firms with varying ownership structures (family-owned versus non-family owned firms). ...
Article
Purpose This study aims to examine the role of institutional investors in improving board diversity for the companies in which they invest (investee companies) using evidence from corporate board characteristics across the globe. Additionally, this study also investigates the association between institutional investors and board diversity under various institutional settings, including varying economic conditions (pre-crisis, crisis and post-crisis), legal systems and ownership structures. Design/methodology/approach Using a sample collected from 15 countries for the period 2006 to 2012, the paper uses panel data analysis to examine the association between institutional investors and board diversity. Findings The study provides evidence that institutional investors do not promote board diversity and show that in general there is no association between institutional ownership and various board diversity attributes such as gender, age, nationality and education. However, the study finds that institutional investors are positively associated with the educational diversity of boards during times of crisis and are negatively associated with board age diversity during pre-crisis and post-crisis periods. Furthermore, while in common law countries institutional investors are found to be negatively associated with board age diversity, they do not influence board diversity outcomes (i.e. gender, age, nationality and education) in civil law countries. The results also show that the associations between institutional investors and board diversity are mixed and insignificant according to different ownership structures (family and non-family owned firms). The main findings of the study are robust and apply to various estimation methods. Originality/value This study provides a unique perspective on the impact of institutional investors on board diversity using a sample collected from 15 countries. Furthermore, the study provides an insight that the institutional settings should be considered when investigating the activism of institutional investors in improving governance practices.
... For all the regressions across the three categories of outcomes, we include: (1) the proportion of outside directors with three or more board positions (MultiBoards%, following Fich & Shivdasani, 2006) relative to the total number of outside directors. This is as a proxy of board busyness to identify the unique contribution of our time arguments based on the lack of primary employment; (2) firm characteristics that may relate to the outcome variables (Adams & Ferreira, 2009;Desender et al., 2013;Hay et al., 2006;Lambert et al., 1991), such as firm size (FmSize, proxied by the logarithm of sales), the leverage ratio calculated by scaling the sum of long-term debt and total current liabilities by the book value of assets (Leverage), the number of business segments (Segment); and (3) four governance controls including CEO duality (Duality) following Finkelstein and D'Aveni (1994), the total number of directors on the board (BdSize) following Yermack (1996), the total percentage of institutional ownership of the firm (Inst) following David et al. (1998), and entrenchment index (E-index) following Bebchuk et al. (2009). The E-index is based on the presence or absence of six governance provisions: staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirements for mergers and charter amendments (Bebchuk et al., 2009, p. 783). ...
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Institutional investors, policy makers, and researchers have advocated for greater director independence in hopes of improving corporate governance and discouraging unethical behaviors such as corporate frauds, accounting irregularities, and other organizational failures. However, increasing demands upon directors and sitting CEOs, as well as constraints on the number of boards on which they can serve, has resulted in a dramatic increase in the use of retired independent directors (“RIDs”). Compared to other directors with full-time job demands, we argue that RIDs (who lack full-time primary employment) have lesser time constraints and greater attentional capacities with which to discharge their responsibilities, thereby improving overall board “bandwidth.” Using S&P 1500 firms for the period of 2000–2012, we find that enhanced board bandwidth associated with an increased proportion of RIDs on the board relates to greater resource provisioning through reducing costs of capital, improved monitoring through reducing disclosure-related weaknesses, and better accounting and market performance. We thereby advance traditional board bandwidth research by contemplating the available time that independent directors would have by virtue of being retired (i.e., whether a director lacks a “day job”) and relating this to board effectiveness.
... (Johl et al., 2007, pp. 713), tax rules(Kang et al., 2019), auditing process(Desender et al., 2013) and the strict oversight by Croatian National Bank. The data was collected from financial statements and independent auditors' reports publicly available for companies whose shares were listed on the Zagreb Stock Exchange. ...
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Background: Since external auditors possess the expertise necessary for detecting manipulations in financial statements, they should also take into account earnings management that could lead to it. In that context, auditor’s independence, which can be affected by auditor’s rotation, is of utmost importance. Objectives: This paper aims to examine the moderating effect of auditor rotation on the relationship between the extent of financial manipulation and the type of auditor’s opinion for companies listed on the Zagreb Stock Exchange in the Republic of Croatia. Methods/Approach: A panel analysis with logistic regression is conducted to test the research hypothesis. The sample consists of 210 observations during the three years from 2015 to 2017. Results: Results show a significant positive relationship between auditor rotation in a current financial year and auditor’s opinion. Furthermore, there is a negative, but the statistically insignificant moderating effect of auditor rotation in a current financial year on the relationship between financial manipulation and auditor’s opinion, as well as the statistically insignificant moderating effect of auditor rotation frequency over five years on the relationship between financial manipulation and auditor’s opinion. Conclusions: It is not likely that auditors take earnings management into account when generating their opinion on financial statements, and auditor rotation is not proven to be an adequate stimulus in that context.
... Firm ownership concentration is considered a corporate governance mechanism that may reduce agency problems (principal-agent problem) in dispersed ownership corporations (Jensen & Meckling, 1976). However, there is evidence that in countries with weak legal protection for investors, ownership concentration engenders alternative agency problems, such as principal-principal problems, affecting corporate governance structures (Desender, Aguilera, Crespi, & García-Cestona, 2013) and firm performance (Villalonga & Amit, 2006). Despite the extensive investigation of the consequences of ownership concentration, research regarding what determines ownership concentration across countries remains unanswered. ...
Article
It is widely recognised that the formal institutional context affects firm ownership concentration. However, the impact of the informal institutional context has received less research attention. Drawing from institutional theory, we tested our hypothesis that both the formal and informal (cultural) institutional contexts simultaneously influence firm ownership concentration. Based on a firm-level database of the largest 600 listed companies in 19 European countries for the period 2009–2015, we found that both formal and informal institutional contexts, considered independently from each other, affect the level of firm ownership concentration. However, when these institutional contexts are considered together, the significance of the formal institutional context’s effect on ownership concentration disappears while the informal (cultural) institutional context remains significant. Specifically, our findings indicate that high power distance, collectivism, uncertainty avoidance, restraint, and short-term orientation favour firm ownership concentration. Overall, our findings demonstrate that the diversity in European cultures explains firms’ different levels of ownership concentration across European firms, signalling that the European Union’s efforts towards a common regulatory frame may not necessarily lead to a convergence of European firms’ ownership structures and, consequently, of corporate governance practices.
... The relationship between ownership structure and governance was addressed by Desender et al. (2013) when they mentioned that best governance practices are highly dependent on environmental and institutional settings where they are only effective in certain combinations. They argued that the type and degree of ownership concentration affects the monitoring role of the board of directors through external audit fees, as firms with dispersed ownership require higher audit fees because independent directors need more effort to monitor the behaviour of management. ...
... Therefore, the present study used a composite measure to try to understand the influence of four board characteristics (board independence, board size, financial expertise, and board meetings) on company performance. Several studies have shown that the efficacy of CGM depends on a company's ownership structure (Desender et al., 2013;Idris et al., 2018b). For example, a board's effectiveness is greatly influenced by the form of ownership of the company (Bennett et al., 2003;Abu Siam et al., 2018). ...
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This research aimed to examine the association between board of directors’ characteristics as a composite measure, the performance of companies in Jordan and the influence of family ownership on this association. Using data on industrial companies indexed on the Amman Stock Exchange (ASE) from 2013 to 2017, a positive association between board characteristics and company performance was found, indicating that higher board effectiveness is associated with more effective monitoring of management behavior. In addition, the association between board characteristics and company performance was strong when there was an interaction with family ownership, as companies with boards with family members achieve higher performance than companies with boards run by external directors. The study findings could be useful to all regulators seeking to improve the quality of monitoring mechanism practices, especially in emerging economies.
... The inconsistent findings of the prior studies examining the relationship between women directors and CP might be the result of overlooking intermediate variables (Desender et al., 2013;Martinez-Jimenez et al., 2020) as Ararat et al. (2015) found a significant mediation of board monitoring in their association. Thus, this study aims to investigate the impact of women directors on CP [return on assets (ROA) and stock volatility] in a randomly selected sample of 320 non-financial listed companies of Malaysia from 2010 to 2014. ...
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Purpose This paper aims to examine the impact of women directors on corporate performance (CP) and the mediating role of board monitoring in their relationship. Design/methodology/approach The ordinary least squares with panel corrected standard errors are used as a primary estimator along with three other estimators to check the robustness of the estimations and address the potential endogeneity in a stratified random sample of 320 non-financial Malaysian companies listed on Bursa Malaysia (Stock Exchange) between 2010 and 2014. Findings It is found that women directors on the board not only improve firms’ return on assets but also reduce the volatility of their stocks. However, these findings are more applicable in small firms as compared to large firms. Besides, it is also noted the board monitoring significantly mediates the relationship between women directors and CP. Practical implications As the monitoring role of women directors improves CP, substantial efforts may be put in to increase their meritorious representation on the boards. The regulators could pay equal attention to the small firms. Additionally, the number of board meetings may also be increased for strengthening the monitoring abilities of the board to improve CP. Originality/value The study contributes to the existing literature, as little attention has been paid to the mediation of board monitoring in the nexus of women directors and CP in the past.
... The result implies that foreign investors choose to invest in stocks of those companies with more independent directors and non-executive numbers. These results are consistent with previous works such as Mangena and Tauringana (2007) and Desender et al. (2013) but contradict Panicker et al. (2016). The empirical evidence is consistent with the theoretical works, which illustrate that the composition and independence of the board lead to effective monitoring and accountability and eventually ensure the protection of the investors, especially the minority shareholders (Fama and Jensen 1983;Yermack 1996;Dechow et al. 1996;Fich and Shivdasani 2005;Raheja 2005;Zattoni et al. 2009). ...
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We examine a theoretically robust but previously undocumented issue of what drives foreign portfolio investments into emerging markets. Foreign institutional investors (FIIs) are often blamed as fair-weather friends who pull out their investment at the first sign of trouble. Using a bottom-up approach, we explore this possibility. We demonstrate the influence of the firm-specific factors such as size, book to market ratio, the riskiness of the stocks, stock prices, dividend yield, liquidity, leverage, and earnings on the FII ownership. We find no evidence to show foreign investors as fair-weather friends. Instead, they are smart traders who follow a diligent investment strategy. We suggest reforms in corporate governance and improvement in financial fundamentals of the companies to attract FII ownership. Supplementary information: The online version contains supplementary material available at 10.1007/s40953-021-00233-3.
... 4 We accordingly expand the analysis by investigating whether the impact of corporate governance mechanisms is contingent upon macroeconomic conditions (stable versus crisis periods) to understand the extent to which governance recommendations are universally valuable. As such, our study seeks to contribute to the growing body of literature that suggests the efficacy and universality of governance prescriptions and impact to depend on firm-specific context or contingencies (e.g., [6,36,58]). concerning the organisational and environmental circumstances. ...
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We examine the impact of board structure, CEO power and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks in both stable and crisis periods. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, the board size, and Chief Executive Officer (CEO) power affected bank risk-taking negatively during the recent financial crisis. On the contrary, institutional shareholder ownership and the presence of an ex-CEO as Chairman influenced bank risk-taking positively. Additionally, we separately analyse stable and crisis periods and observe that in the pre-crisis period only board independence and institutional ownership keep the same impact on risk while CEO power has no influence and the existence of an ex-CEO as Chairman reduces risk-taking by banks. We conclude that different governance characteristics have different relevance for banks' risk-taking contingent on the economic environment being one of stability or crisis.
... Albeit recent findings have elucidated the institutional investor's effect on firm outcomes, studies call for additional investigations about how institutional investors impact firms (Boyd & Solarino, 2016;Fitza & Tihanyi, 2017;Johnson et al., 2010). Traditionally, investors' tasks are modeled as reducing agency costs by monitoring opportunistic managers and avoiding problems of moral hazard (Desender, Aguilera, Crespi, & Garcia-Cestona, 2013;Shi, Connelly, Hoskisson, & Ketchen, 2019), whereas incentives are embedded in the compensation contract (Carpenter & Sanders, 2002;Oehmichen, Jacobey, & Wolff, 2020). The focus on a prominent adverse selection problem-the uniqueness paradox-enables us to paint a clearer picture of how investors can shape managerial incentives in strategic decision making through commitment and patience. ...
Article
This paper examines the effect of dedicated institutional investors on firms' strategy uniqueness. We build on the uniqueness paradox where unique strategies are important drivers of economic rent, yet create an information problem whereby CEOs face discounts from the capital market, thus discouraging them from selecting unique strategies. We propose dedicated institutional investors as a partial remedy to the uniqueness paradox. Dedicated institutional investors invest in gaining private information about their investments, devote effort to understanding firms' strategies, and reduce capital market pressure. Thus, dedicated institutional investors can encourage CEOs to pursue more unique strategies. Our empirical results show the positive influence of dedicated institutional investors on strategic uniqueness, which is even stronger when firms operate in industries that are hard to value.
... Ao emitir tais pareceres, os auditores externos aumentam o grau de confiança que os usuários pretendidos podem colocar nas demonstrações financeiras. Como tal, os auditores externos são considerados integrantes dos mecanismos externos de GC (Desender, Aguilera, Crespi & Garcia-Cestona, 2013). ...
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Objective - The registration and disclosure of the company's accounting information, attributed to the accounting professional, is of utmost importance for the decision making process for the company-manager. This theoretical essay presents and discusses the main contributions of the theory on management decision making between the company and the accounting process. Methodology - In methodological terms, this study is defined as a theoretical essay, in the sense that it seeks, through the existing literature, an understanding of the issue of Corporate Governance in Non-Governmental Organizations. This study can be classified as a theoretical-conceptual bibliographic research. The study will search the existing literature of the theme, with the purpose of elaborating a theoretical reference on Agency Theory, Accounting and Corporate Governance. Results - As a contribution to the discussion, this work was developed from extensive bibliographic research in Brazilian and international journals and events, contemplating foundations related to the reality of Accounting and organizations. Although few researches address the association of these theories with accounting practice, especially regarding the production of accounting information for external users, the research findings expose the close relationship between the two fields of knowledge. Contributions - Among the main contributions of decision theories to accounting science, knowledge about human behavior that can be used in behavioral accounting, the need for subsidies for accountants to make more rational decisions and, especially, the possibility of improving accounting systems, aiming at better treatment of information for the decision-making process, stand out.
... While the UGGC does not endorse any particular model, the Spanish board structure is characterized by a one-tier system, where control of managing directors lies in the hand of a separate supervisory board, typically representatives of large shareholders (Desender, Aguilera, Crespi, & Garcia-Cestona, 2013). The Spanish governance code recommends a board size between minimum 5 and maximum 15 members to foster effectiveness and engagement, where most board positions should be held by external independent directors. ...
Article
In this paper, we empirically examine whether higher levels of compliance with the recommendations included in the Spanish Unified Good Governance Code (UGGC) have an impact on firm performance using a unique hand‐collected panel data set of 145 listed companies for the research period between 2007 and 2012. We find that, in spite of the increasing compliance trend, there is no conclusive evidence that adherence to the UGGC guidelines is a performance relevant factor. This result seems to be robust, as it holds in the main analysis as well as in all the additional analyses conducted. Therefore, our findings would further support the lack of consensus in this line of research regarding the true impact of compliance with the globally disseminated codes of best corporate governance practices on firm performance. The generally inconclusive findings should suggest to shareholders and stock analysts that high scores on these measures do not necessarily translate into higher performance, despite the notion that “good governance” ought to be beneficial.
... In search of a better understanding of such effect, tracing back to at least Pettigrew (1992), many scholars have argued for the need to identify board process variables that may mediate the relationship between board composition so-called 'input' variables and board and firm output variables (e.g. Bammens et al., 2011;Boivie et al., 2016;Charas and Perelli, 2013;Corley, 2005;Cornforth, 2001;Desender et al., 2013;Forbes and Milliken, 1999;Francoeur et al., 2018;Huse, 2005;Kumar and Zattoni, 2019;Pettigrew, 1992;Roberts et al., 2005;Van Ees et al., 2009;Zattoni et al., 2015;Zona and Zattoni, 2007). Such approaches have been variously called board dynamics (Forbes and Milliken, 1999), board information processing (Boivie et al., 2016), and cognitive approaches (Rindova, 1999). ...
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In board governance literature and practice, the presence of outside directors is presumed to have a beneficial effect on board effectiveness and firm performance./home/hum This study challenges this prevailing view by exploring the boundary conditions and intermediate mechanism preventing the potential benefits of outside directors. Our results reveal that reality is more complex than previously assumed. Using unique data from a sample of 561 Belgian small and medium-sized enterprises, we find that the presence of outside directors has a neutral or even negative effect under certain boundary conditions on board service engagement in the small and medium-sized enterprises context. Family ownership control and infrequent board meetings are two important contingencies that reduce management's propensity to disclose firm-specific information to the board in the presence of outside directors. The disclosure of such information, in turn, serves as a critical mechanism to offset firm-specific information asymmetry, associated with better board service engagement and (indirectly) enhanced firm performance. Based on our study, we articulate new theoretical insights for understanding board governance in small and medium-sized enterprises, which integrate existing board governance theories with the dominant coalition context, serving as a springboard for future board governance research.
... The need for auditors, according to agency theory, stems from the need to monitor whether agents are acting in the best interests of owners (Helliar et al., 1996;O'Sullivan, 2000).In other words, protecting shareholders rights and ensuring they receive financial reports of high quality rests on the shoulders of auditors (Desender et al., 2011). According to Wallace et al. (1994), the quality of information disclosed by firms depends on the examination of these firms' reports by an independent third party. ...
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Disclosure quality is a matter of great importance in the accounting literature. This study examines the effect of audit fees, audit firm size and audit opinion on the quality of disclosures. It focuses on a sample of low-quality financial statements in Jordan that have been reported as breaches by the Jordanian Securities Commission (JSC). Data were collected from the financial statements of the manufacturing and services companies listed on the Amman Stock Exchange (ASE) during the period 2009 to 2016. The logistic regression results suggest that audit fees have a positive significant effect, while audit opinion has a negative significant effect on actual violations. However, audit firm size was found to be insignificant in relation to the level of violations.
... Consequently, researchers have long argued that ownership matters to corporate strategy and can have an important impact on firms' long-run competitiveness (Porter 1991). To date, a large number of papers have examined this argument and studied the relationship between ownership and innovation, focusing on the effects of ownership identity or distribution (e.g., Hoskisson et al. 2002, Lee and O'Neill 2003, Choi et al. 2011, Desender et al. 2013, Chen et al. 2014, Zhou et al. 2017). Although these studies have greatly improved our existing knowledge, they rarely take a dynamic view to examine how ownership change may shape innovation (cf. ...
Article
Although many studies suggest a strong link between ownership and corporate strategy, little research has examined how ownership change matters for firm innovation. This paper leverages the context of privatization to study how firms’ transition from state ownership to private ownership shapes innovation. We argue that privatization helps to alleviate not only traditional principal–agent conflicts, but also principal–principal conflicts in firms of concentrated ownership, leading to greater innovation. Exploiting a major privatization reform in China, we show that privatization enhances firm innovation and that this effect is mediated by interest alignment between firm owners and managers as well as that between controlling and minority shareholders. This study contributes to a dynamic view of ownership and innovation by delineating the underlying mechanisms through which privatization affects innovation.
... Gender influence is designed by the institutional context in which they take place particularly, corporate governance structure (Doidge, Karolyi, & Stulz, 2007) and culture (Hofstede, 1998). Studies illustrate these contextual attributes have important influence on the variations of female presence in the corporate boards in terms of monitoring function (Desender, Aguilera, Crespi, & GarcÍa-cestona, 2013;Terjesen & Singh, 2008). ...
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Many government sought to enforce gender equality on the corporate boards, but the implication of doing it are not obvious and might harm economies and firms. We underline this topic by conceptualizing the relationship as corporation and board-specific and embedded within specific contexts. The theory is developed with reference to developing countries, and tested on Turkish firms. The result reflects that female directors improve monitoring mechanism for some firms and reduce it for others. The influence is different across various monitoring indicators, control-ownership wedge, and board structure. The impact varies across different audit quality indicators. The findings call for nuanced responses in relation to women’s nominations from both governments and firms.
... Concentrated ownership refers to the degree of distribution of power between agent and principle. Large shareholders have the ability to directly monitor management actions (Desender et al., 2013;Jensen & Meckling, 1976). Previous studies documented that agency theory is an optimal theory to illustrate the relationship between audit quality and agency conflicts, which is in this study represented by Type II Agency Problem. ...
... Prior research has recognized that the functioning of corporate boards can vary with different types of controlling shareholders (Desender et al. 2013). Despite the gradual transition to the market economy, in China, state ownership continues to play a dominant role (Chen et al. 2019). ...
Article
Political connections have been shown to be important for firms’ survival and growth particularly in emerging economies, but our understanding of its determinants is rather limited. Drawing upon managerial power theory, we posit that executive power will be negatively associated with the percentage of politically connected independent directors (PCIDs) among all independent directors, and this effect will hold for independent directors with government background, but not for those with legislative background. In addition, we argue that state ownership will weaken the impact of executive power on the concentration of PCIDs. Using a sample of 2424 Chinese listed firms from 2004 to 2014 we find strong support for our hypotheses. Our study is the first to theoretically explain and empirically show that executive power will impact the formation of firms’ political connections.
... 4 In addition, controlling managers may have a greater demand for secrecy and tighter control over information (Fan & Wong, 2002); hence, they will not be interested in providing high-quality financial reporting assurance, which should lead to lower audit fees. Also, Desender, Aguilera, Crespi, and GarcÍa-cestona (2013) show that firms with a large proportion of controlling shareholders on the board have a lower demand for external audit services, which should also result in lower audit fees. ...
Article
A dual‐class share structure creates a separation between cash flow rights and voting rights. Dual‐class firms impact audit fees through their effect on supply/demand for auditing. This article examines the association between audit fees and dual‐class share structure for U.S. public firms. We find that a dual‐class share structure is associated with lower audit fees compared to single‐class firms. Further, within dual‐class firms, we find that the divergence between cash flow rights and voting rights is negatively associated with audit fees. The results are consistent with the managerial incentive‐alignment effect and/or the insulation effect of a dual‐class share structure on the supply/demand for audit services. This study highlights that the ownership structure of a firm constitutes an important role in audit pricing.
... For instance, external governance mechanisms such as the market for corporate control, a free press and vigilant business analysts all serve to protect shareholder interests. In such contexts, internal corporate governance practices may be somewhat redundant, and the impact of any individual governance mechanism is potentially smaller because governance mechanisms are often close substitutes (Desender et al., 2013;Rediker and Seth, 1995). In Asia, this is not necessarily the case. ...
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Purpose The purpose of this study is to investigate how concentrated owners add value to Asian firms. While prior research suggests that relational owners (i.e., business groups, top management team, board, government, banks, families, and corporation) may help firms fill institutional voids, this study proposes that it is transactional owners (i.e., foreign and institutional investors) lacking this ability who contribute most to firm performance. As these owners frequently hail from contexts with well-developed corporate governance traditions, they tend to have experience with the design and implementation of such governance practices. Design/methodology/approach This study involves a meta-analysis covering 276 studies from 17 Asian countries. Findings This study shows that transactional owners impose effective governance practices such as separating the chief executive officer (CEO) and Chair roles and assuring board independence. These practices promote decisions benefiting all shareholders, such as preventing diversification and financial over-leveraging. Originality/value This study contributes to the comparative corporate governance literature by showing that implementing internal governance practices helps improve firm performance in Asia. It also contributes to the owner identity literature by opening the black box of how transactional and relational owners differentially affect firms’ strategic behavior. Overall, this study yields a more nuanced understanding of what transactional owners contribute to Asian firms.
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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.
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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.
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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.
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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.
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In this study we examine if corporate governance, as a bundle, can better explain stock co- movement. To test the implication of governance bundles on stock co-movement, we consider a monitoring and incentive alignment bundle. Using 2659 firm–year observations from 321 firms listed on the S&P 500 from 2009-2017, we find that the governance mechanism bundle can enhance the ability of stock prices to integrate better firm-specific information, which reflects on stock co-movement. In addition, we find the existence of a complementary relationship between National Governance Quality and a firm’s board monitoring. This also helps in explaining the puzzle of stock co-movement. The findings will extend the understanding about the co-movement related literature mentioned in the corporate governance and corporate finance research. The findings are also helpful for decision makers and policy makers involved in the efficient controlling of stock co-movement.
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We examine how the size and the composition of acquirer boards are associated with shareholder abnormal returns for 2,230 M&As made by listed firms in Continental Europe. Although board size proves insignificant, our findings do offer some evidence as to a beneficial effect of board diversity on M&A value creation. Gender diversity appears marginally positively associated with acquirer shareholder abnormal returns. The fraction of foreign directors is in general not significantly positive, unless the rule of law in the acquirer country is weak. Nonetheless, nationality diversity in the board turns out harmful in purely domestic takeovers. The influence of age diversity is marginally positive, yet only in domestic and horizontal takeovers. Next, the fraction of independent directors has a robust positive effect on the acquirer CAR, while directors with multiple board appointments prove valuable especially through preventing firms from pursuing poor takeovers. Finally, CEO duality is detrimental only in industry‐diversifying deals initiated by acquirers that are not controlled by an individual or a family shareholder. Any negative CEO‐duality effect is mitigated when the acquirer‐country rule of law is strong.
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In this paper, we investigate the corporate governance and ethical practices of firms in emerging technologies. We argue that because they have unique characteristics and face unique institutional challenges and legitimacy controversies, compared to their non‐emerging technology counterparts, these firms tend to over‐conform with respect to their corporate governance and ethical practices. Drawing on corporate governance deviance theory and legitimacy theory, we develop a number of hypotheses, which we test using data from 68 matched pairs based in the USA for the period 2009–2017. Our findings indicate that emerging technology firms over‐conform regarding both corporate governance and ethical practices, yet, despite such over‐conformity, they have lower legitimacy levels compared to their non‐emerging technology counterparts.
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Despite increasing studies on IT monitoring, our understanding of how the relationships between the watcher and watched are affected by IT-mediation has remained limited in two areas. First, contradictory views exist on the relationships between the watchers and the watched. Studies either adapt traditional actor-centric frameworks assuming pre-defined watcher-watched relationships (e.g., panopticon or synopticon) or remove monitoring actors from the central focus to develop models based on data flows (e.g., dataveillance, assemblages, panspectron). Second, IT monitoring research has predominantly shared the assumptions of IT artifacts as stable objects, the use of which can be bounded and designed. To address these limitations, we develop a concept and framework of veillance applicable to a variety of possible IT or non-IT-mediated relationships between the watcher and the watched. We conduct a literature review with the proposed framework in order to identify IT-enabled transformations to the actors, goals, mechanisms and foci involved in monitoring. Based on our findings, we develop an action net model of IT veillance that aligns with theorization of IT artifacts as equivocal, distributable and open for uses, with edits and contributions by unbounded sets of heterogenous actors having diverse goals and capabilities. We define the action net of IT veillance as a flexible decentralized interconnected web shaped by watcher-watched relationships which are multidirectional, enabling multiple dynamic goals and foci. Cumulative contributions by heterogenous participants organize, impact on and manipulate the net through influencing dispositions, visibilities and the inclusion/exclusion of self and others. The proposed model makes three important theoretical contributions to our understanding of IT monitoring of watchers and watched and their relationships. We discuss implications and avenues for future studies on IT veillance.
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The prevalent financial reporting frauds and scandals in the world have triggered the debate on corporate governance as a means to curtail the management rent-extracting behaviour and restrict manager opportunism. Independent board governance is a mechanism of corporate governance whereby the independent board of directors are responsible for aligning the different interests of the management and the shareholders and positively impacting the company strategy. This research study aimed to evaluate the effect of an independent board of directors on the audit quality in the FTSE 100 companies over a period of five years from 2012 to 2016. The independent variables are therefore the board size and the board independence while the dependent variable is the audit quality measured through the proxy of audit fees as per the O'Sullivan (2000) research study. Control variables of the profitability and capital structure were also incorporated into the operational FGLS regression model for more accurate results after applying different data cleaning techniques to remove biases from the data. The results showed that there was a positive significant effect of an independent board of directors on the audit quality of the companies. This compares with prior research findings and is in contrast to others as well. Lastly, even though the study has its limitations, it does provide the base for future research recommendations.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
Article
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.