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Separation of Ownership and Control
Abstract
This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of 'ownership' and 'control.' Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions.
... In terms of board independence, by using the agency theory, it is predicted that the outside directors will carry out their responsibilities to supervise top management since they are motivated to build reputations in decision-making (Fama & Jensen, 1983), and as a result, a higher proportion of outside directors on the board could reduce the likelihood of involvement and dispossessing of shareholder money by senior management, lowering agency costs (Fama & Jensen, 1983). Furthermore, prior research has shown that by having independent directors ...
... In terms of board independence, by using the agency theory, it is predicted that the outside directors will carry out their responsibilities to supervise top management since they are motivated to build reputations in decision-making (Fama & Jensen, 1983), and as a result, a higher proportion of outside directors on the board could reduce the likelihood of involvement and dispossessing of shareholder money by senior management, lowering agency costs (Fama & Jensen, 1983). Furthermore, prior research has shown that by having independent directors ...
... (Haniffa & Hudaib, 2006) found a strong favorable impact of block-holder ownership on accounting performance using a sample of 347 Malaysian listed businesses between 1996 and 2000. In contrast, (Fama & Jensen, 1983), suggested that if ownership concentration rises to the point that it entrenches management and precludes takeovers, the company performance will suffer. Furthermore, significant shareholders that are obligated to vote with management, and find it advantageous to engage with management, may result in poor business performance due to ineffective supervision and a high-risk exposure (Brickley et al., 1988;Pound, 1988 ...
This study is conducted in order to examine the practice of good corporate governance by analyzing the board composition, ownership concentration, CEO duality and the board size concentrating in stock broking companies. Developed nations has been attracting investors through fairness and transparency in business through good corporate governance in the capital market industry. Thus, improving corporate governance is highly critical since globalization leads to increasing competition for capital, and investors consider corporate governance when making investment decisions. While the weak corporate governance has been recognized as one of the major sources of East Asia's vulnerabilities to the financial crisis, Malaysian Government realized the weaknesses of the local regulatory environment and that stronger regulations and adequate governance are required in order to protect the local capital market and to ensure market integrity is maintained in order to attract foreign and local investments. Some stock broking companies may prioritize revenue rather than adherence to good compliance and corporate governance practices. It is believed that a positive impact can contribute to the overall performance of the company as it can shield and protect itself and investors from unforeseen negative market conditions and support the longevity of the company's business. Thus, it is necessary to examine how the corporate governance correlated to firm performance, and identifying which areas of corporate governance is crucial. This study is examining the corporate governance variables using secondary data gathered from publicly published Annual Report. The data analysis consists of descriptive and inferential statistics, correlation and regression and was performed using SPSS. The result shows that variables OC, CD, BS are correlated with ROA,
... The agency model advocates diversity as a measure of independence (Jensen & Meckling, 1976). The theory stresses that female directors add value to the firm by bringing in their expertise and enhancing board independence in achieving effective decision control (Fama & Jensen, 1983). Female directors have also been noted to have a higher tendency to toughly monitor and sanction CEOs (Ferreira, 2015). ...
... These are managerial control, managerial empowerment, co-optation, and upholding all stakeholders' interests respectively (Madhani, 2016). To ensure the effectiveness of the board in enhancing firm performance, it is suggested that the board should be composed of a higher number of outside directors as this enables enhanced board monitoring and supervision of management to the benefit of shareholders (Fama & Jensen, 1983). The outside directors will enable the board to discharge its monitoring role more effectively as the board is more independent and possesses the integrity to control CEO's actions. ...
... A board composed of a majority of external directors will use their independence and higher incentives to resolve critical internal conflicts among managers and also carry out their control tasks with courage without the influence of management (Bosse & Phillips, 2016;Fama & Jensen, 1983). As the case in the current study context, the moderate number of females serving as independent board members reflects one of the important diversity dimensions for corporations, which is gender diversity and it is a significant feature of corporate governance (Şener & Karaye, 2014). ...
Improved corporate governance practices of banks are viewed as a key mechanism for better performance of banks. Despite the numerous diversification efforts of the Nigerian bank regulators, bank performance remains poor. The study determines the moderating effects of female boards of directors on the relationship between board characteristics and the performance of banks in Nigeria. The quantitative explanatory design utilised a cross-sectional survey sample of 121 respondents from 24 state- and privately-owned banks. Regression analyses were used to examine the effects among the variables. The results showed that board size and board committees (audit, remuneration, and nomination) are positively and significantly related to bank performance. On the contrary, board independence is negatively and significantly related to bank performance. The result revealed that female representation does not have a moderating effect on the relationship between each board size, board independence, and bank performance. Female representation negatively and significantly moderated the relationship between each audit and remuneration committee and bank performance. However, female representation positively and significantly moderated the relationship between nomination committees and bank performance. Our findings shed light on the role of the mandatory policy of including women on banks’ boards and the female board members’ moderating role between the nomination, audit and remuneration committees on one hand and the bank performance on the other
... In due course, while the unit of analysis remained the contract between principals and agents, agency theory advanced into two strands of (1) positivist agency and (2) principal-agent research (Fama and Jensen, 1983;Eisenhardt, 1989;Bendickson et al., 2016). In the first strand, positivist agency addressed the governance mechanisms put in place to mitigate managers' pursuit of own interests especially in large public corporations. ...
... In the first strand, positivist agency addressed the governance mechanisms put in place to mitigate managers' pursuit of own interests especially in large public corporations. The most influential works on this theme are Jensen and Meckling (1976), Fama (1980), Fama and Jensen (1983), Jensen and Ruback (1983) and Jensen (1984). Beginning with Jensen and Meckling (1976), the authors explored the nature of executive compensation and the governance mechanisms contrived to protect the interest of principals. ...
... Later on, Fama (1980) considered the efficiency of capital allocation and the labour market as possible sources of dynamic information for regulating managers' self-serving tendency. This inquiry was corroborated by Fama and Jensen's (1983) identification of the board of directors as representatives of shareholders with an active duty to monitor the opportunism of top executives. Successively, this discourse spurred debates around the legitimacy of golden parachutes and the motive of corporate raids in Jensen and Ruback (1983) and Jensen (1984). ...
... In due course, while the unit of analysis remained the contract between principals and agents, agency theory advanced into two strands of (1) positivist agency and (2) principal-agent research (Fama and Jensen, 1983;Eisenhardt, 1989;Bendickson et al., 2016). In the first strand, positivist agency addressed the governance mechanisms put in place to mitigate managers' pursuit of own interests especially in large public corporations. ...
... In the first strand, positivist agency addressed the governance mechanisms put in place to mitigate managers' pursuit of own interests especially in large public corporations. The most influential works on this theme are Jensen and Meckling (1976), Fama (1980), Fama and Jensen (1983), Jensen and Ruback (1983) and Jensen (1984). Beginning with Jensen and Meckling (1976), the authors explored the nature of executive compensation and the governance mechanisms contrived to protect the interest of principals. ...
... Later on, Fama (1980) considered the efficiency of capital allocation and the labour market as possible sources of dynamic information for regulating managers' self-serving tendency. This inquiry was corroborated by Fama and Jensen's (1983) identification of the board of directors as representatives of shareholders with an active duty to monitor the opportunism of top executives. Successively, this discourse spurred debates around the legitimacy of golden parachutes and the motive of corporate raids in Jensen and Ruback (1983) and Jensen (1984). ...
Longstanding assumptions underlying strategic alliances, such as agency theory, are actively being revoked by dynamics in the new economy. The mechanism of inter-firm cooperation is increasingly being altered by radical developments in blockchains and artificial intelligence among other technologies. To capture and address this shift, this review takes a problematization approach and focuses wholly on the pertinence of agency theory. First, it begins by acknowledging the established corpus in the area before, second, appraising the seven long-held assumptions in the principal-agent relationship encompassing (1) self-interest, (2) conflicting goals, (3) bounded rationality, (4) information asymmetry, (5) pre-eminence of efficiency, (6) risk aversion and (7) information as a commodity. Third, to add a fresh perspective, the review proceeds to proffer seven assumptions to advance a novel 'Blockchain Agency Theory' that would better describe new attributes and relaxed agency behaviour in blockchain alliances. These counter assumptions are (1) common interests, (2) congruent goals, (3) unbounded rationality, (4) information symmetry, (5) smart contracts, (6) mean risk and (7) information availability. In the fourth part, the prior audience of principals and agents is appraised and this culminates into, fifth, a consideration of a new audience of blockchain agency in algocratic environments. Altogether, the seven new assumptions extend and provoke new agency thinking among scholars and blockchain practitioners alike.
... Agency theory suggests that the existence of independent directors can influence the balance of power between insiders and outsiders (Fama & Jensen, 1983). They are more likely to protect the interests of other stakeholders than a board controlled by management. ...
... However, Yermack (1996) and Rashid (2018) suggested that board independence and firm performance are negatively related. Independent and executive directors may collaborate against stakeholders' interests and cause a decrease in firm value (Fama & Jensen, 1983). Thus we propose the following hypothesis. ...
... However, another body of literature contends that directors with several directorships have more robust professional networks, more honesty, and a better reputation, which may benefit organizations (Fernandez Mendez et al., 2017;Masulis & Mobbs, 2014). Previous researchers have found both positive (Fama & Jensen, 1983;Geletkanycz & Boyd, 2011;A. Pandey et al., 2019) and negative (Fich & Shivdasani, 2007;Peni, 2014) relationships between CEO activity and performance. ...
The study examined the relationship between board characteristics and firm performance and the moderating effects of firm size, the board size, and firm age between board characteristics and firm performance. This study considers the legal reforms implemented after the Indian Companies Act 2013. Data from 113 firms with 904 observations from 2012–13 to 2019–20 were analyzed using the fixed panel data estimation approach. A subsample analysis is employed, dividing the data by firm size, the board size, and firm age to test the robustness of the results. The results show that the board size, female director, Promoter CEOs, meeting frequencies, and attendance rate positively affect firm performance. At the same time, the impact of the independent directors and busy CEO has a negative impact on performance. Male CEOs are beneficial for firm performance. The study adds to the literature by identifying critical board characteristics in light of ongoing regulatory reform in emerging economies like India. It has implications for regulators and policymakers who are entrusted with the framing of corporate governance policies.
... At the same time company must recognize "the interests of other stakeholders" by paying close attention to performance-related ESG matters (Rezaee, 2017). Fama & Jensen favor CSR disclosure since it might improve a firm's performance, "higher competitive advantage, or greater reputation" (Fama & Jensen, 1983 as cited in Pucheta-Martí nez & Gallego-Álvarez, 202). Nidumolu et al. (2015) go even further by arguing that sustainability protects & strengthens "long-term success" and maximizes business opportunities by minimizing "social and environmental harm" (as quoted in Rezaee, 2017). ...
... They should implement this strategy in near future (O'Connor et al., 2021). Fama & Jensen favor CSR disclosure since it might improve a firm's performance, "higher competitive advantage, or greater reputation" (Fama & Jensen, 1983 as cited in Pucheta-Martí nez & Gallego-Álvarez, 2021). However, some experts rightfully indicated that this move must proceed cautiously and thoughtfully since the margin for error is high (O'Connor et al., 2021). ...
... A newly developed "management control" system would strongly integrate both financial and non-financial objectives into the senior management compensation portfolio (Epstein and Wisner, 2005;Ghosh et Multiple prior research argued that the Board of Directors (BOD) also has a crucial role to play by evaluating senior management's "performance, compensation, and the role of management in sustainability-related achievements" (Frye et al., 2006;Berrone and Gomez-Mejia 2009b;Eccles et al., 2014, as cited in Al-Shaer & Zaman, 2017. Thus, management compensation and monitoring capacity of BOD both can complement "the quantity and quality of CSR information reported by firms" (Fama & Jensen, 1983 as cited in Pucheta-Martí nez & Gallego-Álvarez, 2021). The Board of Directors can evaluate the performance of senior management by consulting the sustainability committee since the board has the capabilities to assess management performance, compensation, and the role of management in sustainability-related achievements (as cited in Al-Shaer & Zaman,). ...
The primary objective of this research is to examine the relationship between different forms of compensation for the board of directors/senior management and key sustainability indicators for publicly traded companies in the healthcare educational services economic sectors across the globe. This study also investigates the existence of measurable links between sustainability policies and extra-financial performance-oriented compensation for CEO, executive directors, and non-board management individuals based on ESG (environmental, social, and governance) or sustainability factors. The findings reveal a rather moderate, but important relationship between the independent and the dependent variable.
... Agency theory has influenced much of governance research (Combs et al., 2007). Fundamentally, agency theory conjectures that managers are inherently self-interested, while separation of ownership from control provides opportunities for exploiting information asymmetries to the shareholders' detriment (Fama & Jensen, 1983;Jensen & Meckling, 1976). Thus, agency theory focuses on the misalignment of goals and conflicts of interest between F I G U R E 2 Research model: Direct effect of DCCs on innovation and the moderating role of CEO power. ...
... Agency theory has glorified directors for their capacity to monitor, control, and discipline opportunistic managers (Fama & Jensen, 1983;Jensen & Meckling, 1976). Empirical studies show that organizational theories may provide a more comprehensive account of governance mechanisms (Hillman et al., 2009). ...
Although sustainable competitive advantages in today's hypercompetitive economy call for strong management skills, the literature lacks a holistic understanding of the specific capabilities chief executive officers (CEOs) utilize to drive innovation. This article derives the dynamic CEO capabilities (DCCs) concept to examine whether CEOs' individual-level DCCs facilitate firm-level innovation and proposes that CEO power moderates this relationship. Results from a longitudinal sample of S&P 900 manufacturing firms confirm that strong DCCs drive innovation. Further, powerful CEOs can exert a more significant influence on firms' innovativeness through their DCCs, yet this effect is contingent on the type of CEO power.
... First, our research extends the strand of literature that investigates how corporate governance instruments, such as managerial and ownership concentration, affect firm value from the perspective of Spanish small and medium-sized firms. For instance, the results of the studies conducted by Fama and Jensen (1983) show that the cost of monitoring decreases and that the agency problem is mitigated, resulting in higher firm value. Second, we found that both managerial and ownership structures are significant determinants of firm performance in our sample of small and medium-sized Spanish firms. ...
... Conversely, corporate governance features in SMEs have received much less research attention compared to large companies. The definition of corporate governance originated in the large business environment (Fama & Jensen, 1983;Jensen & Meckling, 1976), who studied the effect of separating corporate control and ownership. According to agency theory (Jensen & Meckling, 1976), there are various ways in which management may not act in the best Small Business International Review / ISSN: 2531-0046 / Vol 7 Nº 1 / January -June 2023 / AECA-UPCT 3 interest of the shareholders, e.g., a board mainly consisting of directors cannot effectively monitor management, and combining the roles of the CEO and the chair of the board of directors concentrates too much power in the hands of just one person (Baysinger & Butler, 1985;Fama, 1980;Lefort & Urzúa, 2008). ...
Various corporate governance theories indicate that governance in small and medium-sized enterprises (SMEs) differs to that of larger corporations due to the ownership-management function within the organizational structure. This article provides empirical evidence of enhanced firm value in a sample of listed SMEs resulting from certain corporate governance mechanisms related to managerial and ownership concentration. The empirical analysis conducted in this paper is based on a panel data set consisting of 108 small and medium-sized public firms on the Spanish alternative stock exchange over a time frame of five years (2015-2019). The results suggest that CEO duality, the controlling shareholders, and the second largest shareholders all improve firm value. Conversely, the ratio of independent directors has a negative impact on firm value. These findings are robust to alternative model specifications such as dynamic panel estimators (Generalized Method of Moments -GMM-) and instrumental variable methods. Overall, we show that the governance configuration of listed SMEs can mitigate several of the central issues, such as agency problems, that large corporations face.
... In the regression analysis using all firms listed on the KRX from 2005 to 2016, we find that the ownership of controlling shareholders has a significant negative (-) effect on investment inefficiency. This means overinvestment in low ownership cases and underinvestment in high ownership cases, consistent with expectations in theoretical studies (Jensen and Meckling, 1976;Jensen, 1986;Fama and Jensen, 1983;Holmstrom, 1979;Smith and Stulz, 1985). However, as a result of decomposing the investment inefficiency into overinvestment and underinvestment, we find a significant negative (-) effect only in overinvestment. ...
... The agency problem based on the ownership structure could also be associated with underinvestment caused by excessive risk aversion (Fama and Jensen, 1983). 2 ) Holmstrom (1979) argues that the higher the sensitivity between managers' monetary compensation and the firm's performance, the higher the managers' risk aversion tendency because they have to bear the potential investment losses on his own. ...
This study examines the effect of the interaction between controlling shareholder ownership and product market competition on investment inefficiency in Korea. Consistent with classical agency theory, this study finds that the lower the controlling shareholder ownership, the greater the overinvestment. However, this relationship strengthens in noncompetitive markets but disappears in competitive markets. This suggests that product market competition has a disciplinary effect on the incentive of controlling shareholders to pursue private benefits. This study has implications for the disciplinary effect of competition and expands the literature on agency theory in emerging countries with concentrated ownership structures.
... Corporate governance remains a challenge to almost all firms, particularly as agency exists. The agency problem arises due to the associations between owners and managers [5]. It is, however, fascinating to believe the perception that corporate governance practices should not be critical to SMEs because agency problems are not a major issue since they do not rely on the resources or assets of the masses. ...
Small and Medium-Scale Enterprises (SMEs) have been adopting corporate governance and international strategies to improve performance. However, little is known about the success of corporate governance practices and the international orientation of SMEs, especially in developing countries. Therefore, the objective of this paper is to examine the influence of corporate governance practices and international orientation on the performance of SMEs in a developing country. We used a survey to hand-collect data from 270 SMEs in Ghana in 2022. Consistent with prior studies, we perform robust reliability tests, including confirmatory factor analysis and the Cronbach alpha test. Further, we use the structural equation modelling to test the hypothesis of whether corporate governance and international orientation affect firm performance in SMEs. Our results are as follows. First, we found that international orientation drives good corporate governance practices, and this exerts a positive influence on firm performance. Second, we established that international orientation positively and significantly moderates the relationship between corporate governance and firm performance. The results imply that engaging in the international market offers new knowledge to SMEs in developing countries. Therefore, investors and the government should develop strategies and policies that support the internationalization of SMEs in developing countries.
... The function of an independent director becomes critical as it is the representative of shareholders, other stakeholders on the board. Further, it is responsible for protecting the shareholders' interests [51,52]. Independent directors are completely independent of management and have no personal interests in the firm. ...
During the pandemic era, COVID-related disclosure has become quite critical for shareholders and other market participants to understand the uncertainties and challenges associated with a firm's operation. However, there is no well-grounded and systematic measure to gauge the intensity of COVID-related disclosure and its plausible impact. Therefore, this study develops and validates various COVID-related disclosure measures. More specifically, using a sample of publicly listed U.S. firms and applying natural language processing (NLP) on 10-K reports, we have developed two types of COVID dictionaries (or COVID-related disclosure measurement tools): (a) overall COVID dictionary (count of all COVID-related words/phrases) and (b) contextual COVID-dictionary (count of COVID related words/phrases preceded or followed by positive, negative tones, or financial constraints words). Subsequently, we have validated both types of COVID dictionaries by investigating their association with corporate liquidity events (e.g., dividend payment, dividend change). We confirm that the overall COVID dictionary effectively predicts a firm's liquidity event. We find similar results for contextual COVID dictionaries with a negative spin (i.e., COVID disclosures with a negative tone or an indication of financial constraints). Our results further show that better-governed firms (e.g., greater board independence, and more female directors) tend to have more COVID-related disclosures, despite the fact that more COVID-related disclosures suppress a firm's market-based stock performance (e.g. Tobin's Q). Our results suggest that better-governed firms prefer greater transparency, even if it may hurt their market performance in the short run.
... Corporations do not offer independent directors any incentives other than fees, which allow them to independently oversee insiders' conduct without fear (Adams et al., 2010;Rosenstein & Wyatt, 1990). Independent directors strive to strengthen human capital capabilities in the financial sector in order to boost their reputations (Fama & Jensen, 1983). Strictly monitoring the managers' activities indicates higher independent directors' performance, raising competition among them in the human market (Akhtar et al., 2021). ...
This study has reviewed the literature related to corporate governance (CG) and blockchain technology (BCT). Theoretical and conceptual arguments are used to develop the link between CG mechanisms and BCT. The author identifies that BCT helps firms in reducing the unethical and harmful effects of entrenched managers and the information asymmetry between management and shareholders in firms. BCT, which is a distributed and decentralised ledger for recording transactions, does this by providing an advanced level of security, accuracy, transparency, and accountability in record-keeping. Thus, BCT has the potential to lower agency costs and the roles and functions of traditional CG practices in firms. However, empirical studies on this particular area are scant. Therefore, this study proposed a model for future researchers to test empirically that develops a mechanism between CG practices and BCT. This study will raise awareness among shareholders, practitioners, and policymakers about the need and importance of inducting BCT and modifying CG mechanisms in order for them to survive and be competitive.
... a laboratory experiment to investigate how collective investment decisions are affected by the inflated perceived ability to beat the odds, in combination with overconfidence and gender of the group members. Previous research suggests that, e.g., boards of directors discuss details of merger and acquisition (M&A) investment decisions in interactive board meetings (Fama and Jensen, 1983;Hillman and Dalziel, 2003;Schwartz-Ziv and Weisbach, 2013) and that various board characteristics affect the performance of the approved deals (Khorana et al., 2007;Kolasinski and Li, 2013). A largely overlooked aspect in the investment decision literature is the group members' perceived ability to "beat the odds" of the market. ...
Organizational decisions are often made by groups rather than individuals. Depending on the group composition, each member's characteristics—like gender and motivated beliefs—can influence the final group investment decision. To capture this, we design two types of investment situations in a randomized controlled laboratory experiment—one with fixed chances of success and one with performance-dependent chances of success. This novel design entails the perceived ability to “beat the odds” of the investment and thus models real-life investment situations more accurately than standard lottery choice. Our results demonstrate the benefits of mixed group composition in terms of both gender and overconfidence: Groups with all men and/or all overconfident group members consistently overinvest when a possibility to “beat the odds” is present, but not in standard situations. We explore several channels for our results and find that (i) individual probability perception, (ii) leader responsibility allocation and (iii) spillover effects from priming show significant effects.
... In recent years, agency theory has also been applied to the study of factors influencing corporate environmental behavior, but the conclusions are also different. The traditional agency perspective assumes that the principal-agent costs of owner-operated enterprises (such as family firms) are low [58], but subsequent relevant studies show that family firms have significant principal-agent costs and will affect their environmental behavior. Family members try to seek private interests from the enterprise [59,60], such as nepotism, favoritism, and engagement [54,61], which may lead to lower enthusiasm and productivity of employees in environmental activities [62]. ...
Family firms research is becoming one of the most important and promising areas for theoretical innovation in management practice. Corporate environmental behavior has attracted widespread academic attention, but the research on the environmental behavior of family firms is obviously insufficient, and the relevant research results are still in a fragmented state. In this paper, we review and summarize the existing research on the environmental behavior of family firms from three aspects: the research dimensions, the influencing factors, and the influencing effects, and try to sort out the theoretical lineage and evolutionary logic of the environmental behavior of family firms. From the existing research results, the research on the influencing factors and effects of family firms’ environmental behavior is at the stage of strife, and there is a lack of in-depth and systematic research on the mechanisms affecting the environmental behavior of family firms and the changes of their effects. In the future, we can explore how to apply or integrate multiple theories simultaneously for complementary explanations, so as to provide a reference for the government to formulate targeted policies to stimulate and regulate the environmental behaviors of family firms.
... The board of directors represents a monitoring mechanism that may assist in reducing information asymmetries and increasing the level and quality of disclosure . Further, agency theory claims that the chairman, as part of the company's board, may perform a monitoring role that helps to align the interests of management and stakeholder (Åberg & Shen, 2020;Fama & Jensen, 1983). Ahmed Haji and Mohd Ghazali (2013) argue that an independent board chairman may substantially influence corporate decisions concerning disclosure, strengthening the monitoring role. ...
In recent research, there has been increased attention on the chairman's role in companies' adoption of non-financial reporting. However, no empirical research has explored the chairman's role in improving the quality of integrated reporting (IR). Using the agency theory, this study responded to an existing research gap in the IR literature by analysing the effect of chairman attributes on IR quality. This study uses the International IR Framework (IIRF) to construct the IR index comprising 100 items and four dimensions (background, form, assurance and reliability, and content). The data consists of 363 company-year observations from Malaysian companies over the period 2017–2020. To test the developed hypotheses, panel‐corrected standards error (PCSE) regression is applied. The empirical results indicate that chairmen with longer tenure and larger share ownership are adversely associated with IR quality. Nevertheless, the findings suggest that the chairman age, educational level, and financial expertise are insignificantly related to the IR quality. This is the first research, to the best of the researchers’ knowledge, that investigates chairman attributes as a determinant of IR quality in Malaysia. The study’s findings are important to regulators, policymakers, corporate executives, and other stakeholders interested in how the chairman's role influences companies’ IR quality using evidence from an emerging Asian country – Malaysia.
... On the other hand, the usefulness of increased board meeting frequency in improving business performance depends on the expertise, experience, and enthusiasm of directors. Increased board meeting frequency has a significant negative effect on firm performance ( Concerning the board's gender diversity, it aids in resolving conflicts of interest between management and shareholders (Fama & Jensen, 1983). Female directors are more independent, improve the board's monitoring role more than male directors (Bøhren & Staubo, 2016), and participate more in board meetings (Adams & Ferreira, 2009). ...
This study aims to examine the impact of the characteristics of the board of directors (BOD), namely board independence, board size, frequency of board meetings, and board gender diversity, on firm performance. This quantitative study uses data from all firms listed in the Bahrain Bourse for 2019 and 2020. Data on BODs were taken from the companies’ governance reports, while data on firm performance, namely return on assets (ROA), return on equity (ROE), and earnings per share (EPS), were taken from annual reports. Based on the ordinary least squares (OLS) approach, the results show insignificant relationships between BOD characteristics and firm performance. Board independence, size, frequency of meetings, and gender diversity insignificantly enhance Bahraini firms’ performance. The results indicate that firms may need to effectively implement BOD mechanisms. Moreover, other factors may moderate the impact of BOD mechanisms on firm performance. Hence, the study suggests a need for more regulations and policies to increase the effectiveness of board members. This study alerts policymakers, firms’ shareholders and stakeholders, and researchers to the need to increase directors’ roles in boosting company performance, especially in developing countries, where it is complicated to force business to follow best governance practices.
... The responsibility of the board of directors is to perform a variety of monitoring tasks, that are overseeing management practices to minimize agency costs, aligning the interests of shareholders and management and appointing and firing management staff and monitoring the chief executive officer (CEO) behavior (Amran et al., 2010). The board of directors will be able to play a significant role in improving the company's performance and play an important role in the company's strategic decision making (Fama & Jensen, 1983). ...
Purpose – This study aims to investigate the impact of corporate governance implementation on the dynamics of firm performance in the non-financial sector firms listed on the Indonesia Stock Exchange (IDX). Methodology/approach – This study uses secondary data from the financial statements of non-financial sector firms, between 2010 and 2018. The number of samples that met the established criteria was 88 firms, which were further analyzed using panel regression analysis common effect model. Findings – This study concludes that the implementation of corporate governance (board meeting and board size) in the non-financial sector, has a positive impact on firm performance. Low frequency of board meetings will worsen firm performance, whereas a high frequency of board meetings can improve company performance. In addition, financial information (i.e., leverage, sales growth, and asset turnover), and firm size has a significant impact on firm performance. Novelty/value – This study contributes to providing more general and robust conclusion regarding the effect of implementing corporate governance mechanisms on firm performance listed on IDX, especially in non-financial sector.
... these alliances mirror the connection, overt repetitiveness, and complementarity between the elements. along these lines, it tends to be applied to resulting highlight choice strategies [12][13] [14] . While liquidation forecast mostly centers around foreseeing the finish of an organization's lifecycle, with the moderately slim likelihood of endurance through rebuilding, financial distress expectation is a more normal event, when occupational encounters impermanent issues conference its commitments. ...
Financial Distress Prediction plays a crucial role in the economy by accurately forecasting the number and probability of failing structures, providing insight into the growth and stability of a country's economy. However, predicting financial distress for Small and Medium Enterprises is challenging due to their inherent ambiguity, leading to increased funding costs and decreased chances of receiving funds. While several strategies have been developed for effective FCP, their implementation, accuracy, and data security fall short of practical applications. Additionally, many of these strategies perform well for a portion of the dataset but are not adaptable to various datasets. As a result, there is a need to develop a productive prediction model for better order execution and adaptability to different datasets. In this review, we propose a feature selection algorithm for FCP based on element credits and data source collection. Current financial distress prediction models rely mainly on financial statements and disregard the timeliness of organization tests. Therefore, we propose a corporate FCP model that better aligns with industry practice and incorporates the gathering of thin-head component analysis of financial data, corporate governance qualities, and market exchange data with a Relevant Vector Machine. Experimental results demonstrate that this strategy can improve the forecast efficiency of financial distress with fewer characteristic factors.
Using a sample of 3.808 non-financial European Union listed companies from 2011 to 2020, this study extends previous research by empirically examining how board gender diversity affects the magnitude of earnings management. The results support the predicted (negative) relationship between female directors and earnings management. We also find that when a critical mass of three or more female directors is reached, they can have a voice, which can have a positive impact on earnings quality (less earnings management). The results based on this study offer useful information for regulators in European Union countries. The results also provide useful information to investors in evaluating the impact of board gender diversity on earnings quality. The major contribution of the current study is that in contrast to similar studies, we also present our evidence by country. In addition, we test the critical mass hypothesis to evaluate the ability of female directors to impact earnings management based on their numerical representation on the board of directors, an issue that has drawn reduced attention from empirical studies.
2023). The board of directors influence on the information quality of financial reporting through accounting conservatism-Empirical evidence on Vietnamese listed enterprises. Abstract The information quality contained in financial reporting has practical implications for stakeholders. Accounting conservatism is a criterion that affects the authentication of the value of assets and liabilities related to the financial reporting of enterprises. The role of the board of directors is to supervise the information quality of an enterprise. The purpose of the paper is to examine how the board of directors influences the information quality of financial reporting through accounting conservatism. The survey sample includes 100 listed enterprises that have the highest capitalization in Vietnam's stock market. Time series data taken for the last five years are published by enterprises from 2018 to 2022. The paper implements the quantitative method of ordinary least squares to test the hypotheses. The results explore that board size, board independence , and audit organization affect the information quality of financial reporting through accounting conservatism. Accordingly, board size has the strongest influence, and board independence has the weakest effect on the information quality of financial reporting through accounting conservatism. The research suggests some policies for Vietnamese listed enterprises to have appropriate regulations for the board of directors and strengthen control of the information quality of financial reporting.
Purpose
This study investigates the impact of female directors on firms' financial performance by scrutinizing the different roles they are empowered to fulfill.
Design/methodology/approach
This study examines the impact of the roles performed by female directors on firms' financial performance using a panel dataset of the top 100 listed Indian firms over a period of 5 years. The study uses an appropriate panel data model for empirical analysis. For the robustness evaluation, a two-stage least square (2SLS) with the instrumental variable model were used.
Findings
The findings reveal a significantly positive impact of the total percentage of female directors on firms' financial performance. Further, by disentangling the impact of the total percentage of female directors between independent directors and executive directors, the study shows that independent female directors make a significant positive contribution to their firms' financial performance. By contrast, the performance impact of female executive directors was insignificant. In addition, the findings reveal that firms with a higher proportion of independent female directors outperform firms with a higher percentage of female executive directors.
Originality/value
This study is the first of its kind to unravel the performance impact of female directors and distinguish between the roles of independent directors and executive directors in the context of the emerging market of India, after the imposition of a gender quota for corporate boards.
According to research, accounting narratives are frequently utilized and valued in the investing choices of both individual and institutional investors. Nevertheless, slight study has examined on the association between internal corporate governance mechanisms and impression management (IM). Rely on theories like agency and signaling, this research investigates the impact of board chairman qualities, characteristics of board of director, ownership structure and characteristics of audit committee on IM. The research population consists of non-financial Malaysian companies listed on Bursa Malaysia’s Main Market. The study uses ordinary least squares (OLS) regression to test the direct relationships directors’ chairman characteristics and impression management. Moreover, robustness and sensitivity test were used to examine the effectiveness of chairman characteristics with IM. This study finds that board of directors’ characteristics has significant association with IM. Moreover, characteristics of board chairman, audit committee and ownership structure has impact significant on IM. In addition, this study demonstrates that the effectiveness of the chairman and board of directors has a considerable impact on IM. Giving the right parties—policymakers, standard-setters, and regulatory bodies—a reference point to use as they work to enhance the caliber of financial reporting quality (FRQ) and corporate governance practices in light of the study’s findings aids in raising awareness of IM practices and internal corporate governance mechanisms among Malaysian listed companies.
Closed-end funds are thought to have negligible fire sale risk as they have stable funding. However, I show that embedded covenants can generate price pressure in collateralized loan obligation (CLO) funds, even though such funds are closed end. Loans held by constrained CLOs report significantly lower cumulative returns than loans held by unconstrained CLOs. This can be explained by contractual arbitrage, a practice by which CLOs exploit loopholes in the design of covenants to mechanically loosen their covenants and avoid covenant breaches. Covenant breaches are associated with significant pecuniary and nonpecuniary costs, affecting CLO compensation, reputation, and career prospects. I show that when covenants breaches are imminent, managers fire sell distressed loans. Hence, I demonstrate a channel by which closed-end funds can also create fire sale risk, akin to their open-end counterparts.
This paper was accepted by Lukas Schmid, finance.
Funding: This research was funded by the John and Serena Liew Fellowship Fund at the Fama-Miller Center for Research in Finance at the University of Chicago Booth School of Business, the University of Chicago PhD Program Office, the Stigler Center for the Study of the Economy and State, and the University of Chicago Library.
Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4708 .
Despite the increased interest in entrepreneurship across scientific and professional fields over the years, existing research in female entrepreneurship has remained largely disjointed in the academic literature, due to the different theories, approaches, methodologies, and research questions addressed, making it difficult to take stock of what is known about women’s entrepreneurial activity. This paper aims at deepening the contribution of female entrepreneurship to organizational success/resilience, and so to the economic recovery, by conducting a review of literature and a content analysis of the most frequent topics on the subject and their chronological evolution over time.This paper, on the one hand, provides a structured reference point to carry research on gender entrepreneurship forward into specific sub-areas. On the other hand, it offers insights about the opportunities and barrier that can explain the women’s interest and motivation for entrepreneurship encompassing a range of aspects (i.e., performance, governance, disclosure, CSR), encouraging them to become effective entrepreneurs and sustain the growth in our economies and societies.KeywordsLiterature reviewFemale entrepreneurshipGovernancePerformanceDisclosure
Purpose
This paper aims to verify whether the legitimate pressure of external forces on heavily polluting firms’ corporate social responsibility (CSR)-related behaviors affect firms’ assurance strategy in the Chinese context. The authors argue that, under external pressure, as a source of legitimacy, the assurance over CSR reports allows the business behaviors of heavy polluters to be recognized by society.
Design/methodology/approach
This paper sampled listed heavy polluters in China from 2011 to 2018 and used the multiperiod logit model to examine the effects of external corporate governance on firms’ assurance decisions. Principal component analysis methods were used to construct a comprehensive framework of external corporate governance. The indicators were obtained from the China Stock Market and Accounting Research databases, the NERI Report and the China Urban Statistical Yearbook.
Findings
This paper confirms that external corporate governance positively affects firms’ assurance decisions, and good financial conditions, well-governed internal controls and sufficient government subsidies positively moderate this effect.
Practical implications
The findings provide feasible ways to encourage firms’ high-quality corporate environmental information disclosure, thus providing valuable guidance for policymakers and other stakeholders to effectively supervise firms’ CSR behaviors.
Social implications
The findings are of great importance in encouraging high-quality corporate environmental information disclosures, improving the support of capital markets among developing countries and drawing social attention to the environmental protection and social responsibility of heavy polluters.
Originality/value
The research extends the current research in the field of social environmental accounting by using legitimacy theory to explain firms’ assurance motivations. Additionally, this paper focuses on the practices of assurance services in the emerging economy and provides suggestions for developing assurance over CSR reports.
Drawing on upper echelons theory and political science research, we investigate how CEO political ideology influences a firm's choice between international alliances and international acquisitions as an entry mode into foreign markets. Due to their ideological differences, we find that firms led by more liberal CEOs are more likely to use international alliances when entering a foreign market while firms led by more conservative CEOs are more likely to use international acquisitions as an entry mode choice. We also examine how these political preferences of CEOs can be mitigated by more vigilant boards. We find that the effect of CEO political ideology on the choice between international alliances and international acquisitions is mitigated by greater board independence and greater independent director shareholdings in the firm. However, contrary to our expectations, we find that separating the CEO and board chair positions has no effect on this relationship, suggesting that CEOs' political preferences shape such choices regardless of whether CEOs are also the chair of the board. In general, our findings indicate the importance of CEO political values as a predictor of a firm's approach to foreign market entry strategies.
Purpose
This study aims to examine the relationship between corporate governance (CG) voluntary disclosure (VD) and firm valuation (FV). Moreover, the study also investigates whether VD mediates the impact of CG on FV or not.
Design/methodology/approach
The study is based on a panel data set of top 100 listed firms on Bombay Stock Exchange (BSE) over the period of 2014–2018 and develops CG index and VD index (VDI) in order to capture both the constructs respectively. The author adopts suitable panel data model to examine the relationship between CG, VD and FV as well as indirect impact of CG on FV through mediation of VD. Further, the author uses instrumental variables regression model for robustness check.
Findings
The author's findings reveal significant positive impact of CG on FV. Likewise, VD also exhibits significant positive impact on FV. Notably, the interaction of CG and VD complements each other in making positive contribution towards FV. In addition, the author observes that VD partially mediates the impact of CG on FV. Specifically, the outcome suggests that CG apart from having direct impact on FV also influences the same through the mediation of VD. Moreover, as the direction of indirect impact coincide with direct impact, such indirect impact has complementary relationship with the direct impact, implying that when CG makes direct contribution towards improving FV, CG's contribution toward FV through mediation of VD also increases.
Originality/value
To the best of the author's knowledge, this is the first endeavor in the extant literature that examines the interaction performance impact of CG and VD. Further, the author also provides primary evidence on the mediating impact of VD in the relationship between CG and FV.
This study connects corporate governance and international business literature streams focused on cross-border acquisition success and failure. Based on the results of fuzzy-set qualitative comparative analysis, we developed a mid-range theory stipulating that cross-border acquisition success and failure are associated with complementarities within and between the two groups of explanatory factors—acquirer corporate governance mechanisms and host-country institutions. Building on current research evidence suggesting the standalone necessity of solid acquirer corporate governance and high-quality host-country institutional infrastructure, we theorized that these two groups of explanatory factors play complementary roles in cross-border acquisition success. Our results also provide reinforcing evidence suggesting the duality of CEO power and the conjoined importance of host-country institutions in cross-border acquisitions.
This study investigates how proxy solicitation and director ownership jointly affect directors' career consequences in Taiwan. We report that assent votes partly arising from proxies without shareholder voice increase the likelihood of departure for directors with higher ownership in firms soliciting proxies, especially for busy directors. Since proxy votes do not build extra reputation, this generates no spillover effect for both non-busy and busy directors. Overall, we support the arguments based on prior studies that votes holding information on shareholder voice have implications on directors’ careers. Furthermore, different board seats provide unequal incentives for busy directors.
Banks recognize environmental, social, and governance (ESG) risks as relevant factors in loan contracts since a growing number of such concerns threaten financial stability. We trace this literature focusing on interactions between borrowers’ ESG practices and their banking relationships. We analyze underlying theories why banks change their lending terms contingent on borrowers’ ESG profiles followed by exploring the channels through which firms’ ESG activities affect bank lending decisions, including loan interest rates, maturity, and collateral requirements. We also discuss how banks may affect borrowers’ ESG policies and investment via lending relationships. Finally, we provide new empirical evidence to show that banks’ ESG risks become more value-relevant in the capital market over time. We contribute to the literature by investigating the learning process between banks and borrowers, specifically showing that banks do learn by observing the ESG behaviors of responsible borrowers and consequently improve their own ESG scores.
Purpose
This paper examines the capital structure decisions of family firms in Southeast Asian (ASEAN) countries, considering the moderating effects of various firm-level and country-level factors.
Design/methodology/approach
The authors apply various panel data models to analyze the data of listed firms in six ASEAN countries over the period of 2007–2017.
Findings
The authors find that family firms tend to use more debt, particularly short-term debt, than non-family firms, which is explained by family owners' concern about the risk of losing control. The authors further document that family firms would use more debt when they have lower ownership concentration, have more family members on the board of directors and are young firms. The authors also find that the impact of family ownership on capital structure is moderated by the level of investors' legal protection of a country.
Originality/value
This study, for the first time, provides comprehensive analyses of the financing decisions of family firms in ASEAN using a unique hand-collected dataset, which highlights that regional culture and market conditions can shape family firms' financing decisions. The authors also manage to mitigate the endogeneity issues that pervade most research on family firms. In addition, this research further explores the heterogeneous impacts of family control on capital structure given different levels of board involvement, firm age, ownership concentration, and most importantly, institutional differences. Such insights provide useful information for prospective investors as well as regulators to make more efficient investment and legislative decisions.
This is a comparative study on firm efficiency, a proxy for firm performance, between family-owned business (FOB) and non-family-owned business (non-FOB). This study aims to determine a firms' efficiency by comparing FOB and non-FOB in Southeast Asia countries. The efficiency ratios for five Southeast Asian countries were estimated using Data Envelopment Analysis (DEA), before a two-sample T-test to determine the differences between FOBs and non-FOBs. Hence, secondary data research techniques from each country from 2007 to 2016 were used to conduct the comparison. The data were gathered from various sources. The findings did not archive any comparison in performance among FOBs and non-FOBs. This finding is fundamental for the Board of Director (BOD), senior management of the firms, researchers, policymakers, scholastics, and the overall population., Ceteris paribus, both FOB and non-FOB, ought to work at a similar efficiency even out and have the option to produce comparative returns for their shareholders. Subsequently, stakeholders can compare treatments to assist in alleviating the dependency on two unique treatments or strategies when managing FOB and non- FOB. In short, it could expand the BOD and management efficiency.
Purpose: As shareholder-elected monitors, independent non-executive directors (INEDs) should ensure that managers do not retain earnings to promote their own interests. The relationship between board independence and dividend distributions was hence investigated for selected companies listed on the Johannesburg Stock Exchange (JSE). The country offers a well-developed corporate governance framework to listed companies.Design/methodology/approach: Data on the considered companies’ dividend payout ratios (DPRs), board independence and six control variables were obtained from Bloomberg for the period 2007–2021. The significance of the observed trends in these variables was considered by conducting analysis of variance (ANOVA) and Fisher’s least significant difference (LSD) tests. The hypothesised relationship was assessed using a mixed-model regression.Findings/results: The results are in line with prior research showing that dividends are often omitted or reduced during and after crisis periods, that is, the global financial crisis (2008/2009) and the coronavirus disease 2019 (COVID-19) pandemic (2020/2021). A negative but statistically insignificant relationship was reported between DPR and board independence.Practical implications: Although board independence was not significantly related to dividend distributions for the sampled companies, INEDs still perform an important monitoring role. Shareholders are thus encouraged to play a more active role in the election of these directors.Originality/value: This study extends and refines previous research in South Africa and reveals new insights regarding board independence and dividend distributions during three King regimes and distribution-related regulatory changes.
In recent decades, there has been a growing demand for companies to take responsibility for the adverse social and environmental effects caused by their activities. As a result, they are no longer only accountable for their economic performance but also their corporate social responsibility. An important pillar of corporate social responsibility is gender diversity in the company as a whole and on the board of directors in particular. The hospital sector, whose activity in itself requires social responsibility, was later than other sectors in its disclosure. This research aims to analyze the influence of corporate social responsibility, together with gender diversity on boards of directors and the COVID-19 pandemic, on the profitability of Spanish private hospitals. In addition, this research studies the dissemination of COVID-19 throughout the Spanish territory, relating wealth and risk. For this purpose, data corresponding to the period 2017–2020 were analyzed using multiple linear regression analysis, cluster analysis, and factor analysis. The results show that those socially responsible hospitals show higher profitability, but no causal relationship has been established. Gender diversity negatively influences the profitability of the private hospital sector, although it can be considered non-significant. The COVID-19 pandemic significantly affected the profitability of hospitals, causing a sharp drop. The spread of the COVID-19 pandemic was mainly influenced by the population density of the territories but also by public health investment, showing a greater propensity to control the pandemic in those regions that allocate more funds to health care.
The presence of board members with good governance attributes is value-relevant since it influences investors’ investment decisions. The value relevance is expected to improve with the newly introduced extended audit report to disclose key audit matters (KAMs). KAM disclosure provides information about issues faced by external auditors in the auditing of a company’s financial statement. Since the disclosure of KAM involves discussion and negotiation between the board and external auditor, it gives an indication that board value relevance can be affected by KAM disclosure. Using 931 firm-year observations from firms listed on the Bursa Malaysia between 2016 and 2019, this study re-examined the value relevance of the board and whether such value relevance improves with the disclosure of KAMs. The findings indicated that some board attributes influenced investors’ reactions negatively. The disclosure of KAM served as both an indirect mediator and a complementary mediator to increase the board’s value relevance. Investors reacted less negatively with KAM disclosure and companies’ values improved. The findings provide an insight into the role of KAM disclosure in reducing information asymmetry and assisting investors in making investment decisions. The findings support policymakers’ decisions to mandate the implementation of ISA 701, which requires the disclosure of KAMs.
Purpose
This study aims to examine the link between boards and audit committees and firm performance in Kuwaiti listed firms in the context of recent and extensive corporate governance regulatory reform.
Design/methodology/approach
Panel data regression analysis with fixed effects and clustered standard errors of firm performance for 61–97 listed industrial and services firms in Kuwait over a seven-year period. The dependent variables are the returns on assets and equity, the debt-to-equity ratio and leverage and Tobin’s Q and the independent variables comprise board of directors and audit committee characteristics, including size, the number of meetings and the numbers of independent and outside board and expert committee members. Firm size, subsidiary status and cash flow serve as control variables.
Findings
Mixed results with respect to the characteristics of the board of directors. Board size and independent and outsider board members positively relate only to Tobin’s Q and insiders only to debt to equity. For audit committee characteristics, committee size, independence and expertise positively relate to the return on equity and committee size and expertise only to Tobin’s Q. Of the five performance measures considered, board and audit committee characteristics together best determine Tobin’s Q.
Research limitations/implications
Data from a single country limits generalisability and control variables necessarily limited in a developing market context. Need for qualitative insights into corporate governance reform as a complement to conventional quantitative analysis. In combining accounting and market information, Tobin’s Q appears best able to recognise the performance benefits of good corporate governance in terms of internal organisational change.
Practical implications
The recent corporate governance code and guidelines reforms exert a mixed impact on firm performance, with audit committees, not boards, of most influence. But recent reforms implied most change to boards of directors. One suggestion is that non-market reform may have been unneeded given existing market pressure on listed firms and firms anticipating regulatory change.
Social implications
Kuwait’s corporate governance reforms codified corporate governance practices already in place among many of its firms in pursuit of organisational legitimacy, and while invoking substantial change to audit committees, involved minor change to firm performance, at least in the short term. Some firms may also have delisted in expectation of stronger corporate governance requirements. Regardless, these direct and indirect processes both improved the overall quality of listed firm corporate governance and performance in Kuwait.
Originality/value
Seminal analysis of corporate governance reforms in Kuwait, which have rapidly progressed from no corporate governance code and guidelines to an initially voluntary and then compulsory regime. Only known analysis to incorporate both board of directors and audit committee characteristics. Reveals studies of the corporate governance–firm performance relationship may face difficulty in model specification, and empirical significance, given the complexity of corporate governance codes and guidelines, leads in changing firm behaviour and self-selection of firms into and out of regulated markets.
Australia is an ‘Anglo-Saxon’ Pacific-Rim country that has strong features of both relational (Asian) and economic (Anglo) corporate governance. Extending resource-based view (RBV) into this unique context we predict that safeguarding the pre-initial public offering (IPO) top management team (TMT) members and directors (insiders) firm-specific investments by continuing to retain a few insiders even after an IPO is more important than blindly adopting agency-theory US inspired regulations. To test our predictions, we hand collected a sample of young Australian firms to document whether institutional pressures to adopt board independence and replace the founder, or original, pre-IPO insiders by Australian companies negatively impacts post-IPO financial performance. Consistent with our predictions we find the presence of a few of the original insiders significantly improves post-IPO financial performance. These findings contribute to RBV theory and have implications for Asia Pacific corporate governance.
This research recognizes the increasing importance of the preservation of the natural environment for society as well as for the corporate sector. The study adopts a stakeholder-agency theory perspective to examine the influence of characteristics and effectiveness of the board of directors on the environmental disclosures made by the corporate sector. The method of content analysis was adopted for collecting information on board characteristics, board processes, and environmental disclosures made by the sample companies. The extent of environmental disclosure has been measured by using an Environmental Disclosures Index. It was found that a higher proportion of independent directors, the absence of chairman-CEO duality, and the overall board effectiveness had a significant positive influence on the extent of environmental disclosures. However, board diversity represented by female directors on the boards was found to have a statistically insignificant impact on environmental disclosures.
This paper proposes a systemic model on the intertwined relations among managerialization, professionalization and firm economic performance, considering both business‐ and family‐specific features and issues. It sheds light on the role that, in the family business, the firm economic performance may play in favouring a positive development of both the business and the family itself. It aims at understanding how, in family businesses, the firm managerialization and professionalization may represent relevant drivers of firm performance. A Systems Thinking model based on causal loop diagrams was developed, to provide a clear framing of the interrelationships among the various aspects at stake. The conceptual model combines with systemic perspective all the variables and relationships that come into play when considering jointly the growth and development of the company and the family. This paper provides not only a conceptual background but also practical insights for family business' owners, managers and consultants.
Purpose
The paper examines the relationship between board effectiveness and audit fees for state-owned enterprises (SOEs). Furthermore, given the unique nature of SOEs, the paper assesses country-level influences, such as economic freedom, political democracy and protection of minority shareholders, which can impact board effectiveness and audit fees.
Design/methodology/approach
A combination of two-stage and ordinary least squares regression is used to examine the board characteristics-audit fee relationship for SOEs in a multinational setting during the period from 2016 to 2018.
Findings
The results indicate that board characteristics that represent a high level of effectiveness are associated with higher audit fees in SOEs. Furthermore, the findings suggest SOE's operating in countries evidencing medium levels of democracy and economic freedom and medium to high levels of protection of minority shareholders may be motivated to reduce agency conflicts by promoting accountability and transparency, thereby demanding increasing levels of corporate governance, monitoring and audit quality, thereby increasing audit fees.
Practical implications
The results provide further support for the OECD (2015) guidelines promoting the use of high-quality external audits in SOEs.
Originality/value
As a result of the scarceness of research in this area, the current study extends the literature by examining the role of corporate governance and audit fees in SOEs, while examining the influence of economic freedom, political democracy and protection of minority shareholders.
Purpose
In recent years, the role of environmental, social and governance (ESG) disclosure has become crucial. The aim of this paper is to study how corporate governance affects one part of ESG disclosure: anti-corruption disclosure.
Design/methodology/approach
This study examined 140 corporate social responsibility (CSR) reports from companies listed on the Italian stock markets and 50 CSR reports from other companies, then this study analysed the adoption of the Global Reporting Initiative (GRI) standard no. 205.
Findings
The results show a low level of disclosure, and that corporate governance issues matter. In particular, the analysis found a positive relationship between the presence of female and outside members, the number of board members and the level of anti-corruption disclosure.
Research limitations/implications
This study acknowledges some limitations. Firstly, the research is based on a one-year sample. Secondly, the research hypotheses are confirmed only when considered in relation to a single section of the GRI standards. Thirdly, this study has a bias towards relatively large enterprises.
Practical implications
It could be worthwhile introducing a soft regulation regarding the composition of the board of directors that requires a certain quantitative and qualitative composition.
Originality/value
To the best of the authors’ knowledge, this is one of the few studies, the first in Italy, that sheds light on anti-corruption disclosure and its determinants.
We examine the association between strategic deviation and investment inefficiency. We conceptualize strategic deviation as the extent to which the pattern of a firm’s resource allocation deviates from its industry peers. We posit that firms pursuing deviant strategies are prone to increased information asymmetry and hence, are able to engage in self-serving behaviour as manifested in inefficient investments. Our results suggest that deviant firms have sub-optimal investments. A battery of robustness tests validates our findings. We further provide evidence to suggest that weaker monitoring, high product market competition and a low-quality information environment moderate the relation between strategic deviation and investment inefficiency.
JEL Classification
M41, G41
China is facing an acute portable water problem and presents a picture of severe supply constraints. Thus, China's water crisis offers attractive business opportunities for foreign water companies as well as domestic private water companies. Hence, the private sector participation in the Chinese water sector is a hot topic. This chapter investigates the impact of gender diversity on board of directors on the financial performance of the Chinese private water companies using ordinary least squares (OLS) and unbalanced panel (random effects) regression models, which are estimated as the baseline approach on a sample of 19 Chinese private water companies for the period of 2010-2017. The OLS and random effects results show that number of women on board (WB), percent of women on board (%WB), number of female executives (FE), and percent of female executives (%FE) affect the Chinese water companies' financial performance. The results of this chapter are important for researchers, regulators, and policymakers to benefit from policies that encourage board varieties at an individual water company level.
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.
The theory of the optimal allocation of resources under conditions of certainty is well-known. In the present note, an extension of the theory to conditions of subjective uncertainty is considered.
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
Economists have long been concerned with the incentive problems that arise when decision making in a firm is the province of managers who are not the firm's security holders. One outcome has been the development of “behavioral” and “managerial” theories of the firm which reject the classical model of an entrepreneur, or owner-manager, who single-mindedly operates the firm to maximize profits, in favor of theories that focus more on the motivations of a manager who controls but does not own and who has little resemblance to the classical “economic man.” Examples of this approach are Baumol (1959), Simon (1959), Cyert and March (1963), and Williamson (1964b). More recently the literature has moved toward theories that reject the classical model of the firm but assume classical forms of economic behavior on the part of agents within the firm. The firm is viewed as a set of contracts among factors of production, with each factor motivated by its self-interest. Because of its emphasis on the importance of rights in the organization established by contracts, this literature is characterized under the rubric “property rights.” Alchian and Demsetz (1972) and Jensen and Meckling (1976b) are the best examples. The antecedents of their work are in Coase (1937, 1960). The striking insight of Alchian and Demsetz (1972) and Jensen and Meckling (1976b) is in viewing the firm as a set of contracts among factors of production.
The corporate-control market The conventional approach to a merger problem takes corporations merely as decision-making units or firms within the classical market framework. This approach dictates a ban on many horizontal mergers almost by definition. The basic proposition advanced in this paper is that the control of corporations may constitute a valuable asset, that this asset exists independent of any interest in either economies of scale or monopoly profits, that an active market for corporate control exists, and that a great many mergers are probably the result of the successful workings of this special market. Basically this paper will constitute an introduction to a study of the market for corporation control. The emphasis will be placed on the antitrust implications of this market, but the analysis to follow has important implications for a variety of economic questions. Perhaps the most important implications are those for the alleged separation of ownership and control in large corporations. So long as we are unable to discern any control relationship between small shareholders and corporate management, the thrust of Berle and Means's famous phrase remains strong. But, as will be explained below, the market for corporate control gives to these shareholders both power and protection commensurate with their interest in corporate affairs. A fundamental premise underlying the market for corporate control is the existence of a high positive correlation between corporate managerial efficiency and the market price of shares of that company.