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Corporate Governance and Capital Structure: A Spanish Study: Corporate Governance and Capital Structure
... Theories regarding capital structure have largely ignored the influence of the quality of the contractual structure of family businesses, combining economic and family relations, which may lead to the use of different financial resources and influence their capital structure (Acedo-Ramirez et al., 2017;Croci et al., 2011;Poletti-Hughes & Martínez Garcia, 2020). Several recent studies have found a significant relationship between FF and firm leverage across countries (e.g., Granado-Peiró & López-Gracia, 2017). Still, most of them focused on large and listed firms. ...
... That is, managers will find private incentives to deviate from the maximization objective (Jensen, 1986;Morck et al., 1988). When managers are entrenched, they reduce the level of debt to avoid its disciplinary role over the firm's free cash flow and avoid taking excessive risks (Granado-Peiró & López-Gracia, 2017;Pindado & De La Torre, 2011). ...
... H3a: The number of shareholders has a significant negative impact on leverage H3b: The equity stake of the main shareholder has a significant positive impact on leverage H4: The fact that the main director is also a shareholder has a significant positive impact on leverage Finally, following some previous authors (e.g., Friend & Lang, 1988;Granado-Peiró & López-Gracia, 2017), we analyze the potential existence of a non-linear relation and moderating effects of some firm characteristics. Thus, we test the additional hypothesis: ...
The objective of this paper is to empirically examine the relationship between the firm’s ownership and control structure and its leverage. Capital structure is not only the result of various financial characteristics of the firm but also depends on who is in control. Thus, it is fundamental to understand the influence that certain features of the shareholding structure or the composition of the board, including the potential differences between family and non-family firms, exert on capital structure decisions. The paper uses a sample of wine firms in Portugal, because it helps to capture a business sector where family firms make up a significant portion of the industry. It is used an unbalanced panel data set of 460 firms for the period 2010 to 2018 and applied a random-effects model specification. Our results do not evidence significant differences between family and non-family firms. Still, they indicate that firms with fewer shareholders, smaller boards, and where the main director or member of the board is also a shareholder tend to present higher debt levels. There is no evidence of a non-monotonic relation between the ownership structure and debt, nor the presence of moderating effects on that relation. This paper fills a gap in the literature as the impact that specific characteristics of firms and their leaders have on capital structure decisions is still a topic less studied in the literature, particularly in bank-based economies.
... Sermaye yapısı işletme finansmanındaki borç-özkaynak karmasının dağılımı olarak tanımlanabilmektedir. Özellikle sermaye yapısı konusunda yapılan çalışmalarda borç/özkaynak oranının firma değerlemesinde önemli bir yerinin olduğu ortaya konulmuştur (Tarus & Ayabei, 2016). Bununla birlikte sermaye yapısına ilişkin çalışmaların bir kısmında borçların uzun dönem-kısa dönem dağılımının yada banka kredisi-tahvil dağılımının dikkate alındığı görülmüştür (Alves vd., 2015;Kassim vd., 2013;Granado-Peiró & Lopez-Gracia, 2017). Literatürde kurumsal yönetim bakış açısından sermaye yapısını açıklamaya yönelik üç teori öne çıkmıştır: (1) ödünleşme teorisi (2) serbest nakit akışı teorisi, (3) finansman hiyerarşisi teorisi. ...
... Özellikle Türkiye gibi gelişmekte olan ülkelerde banka kredisi kullanımının diğer borçlanma yöntemlerine göre daha fazla kullanıldığı görülmüştür. Bu şekilde işletmeler ileride değişecek ekonomik koşullar ile birlikte yeniden yapılandırma olasılığını da göz önüne almaktadırlar (Granado-Peiró & Lopez-Gracia, 2017;Damodaran, 2015:294). ...
... Bununla birlikte özellikle Türkiye gibi aile şirketlerinin yoğunlukta olduğu ülkelerde borç kullanımının düşük olduğu gözlenmektedir. Bunun en önemli nedenlerinden biri yönetimde de aile etkisinin devam ediyor olmasıdır (Granado-Peiró & Lopez-Gracia, 2017;Alves vd., 2015). Bağımsız yönetim kurulu üyelerinin ortakların menfaatlerini maksimize etme yönünde etkinlik gösterip göstermediği hususunda çeşitli sorular ve tartışmalar söz konusudur. ...
In the context of corporate governance approach, this study analyzed the relationship between board of directors and capital structure in Istanbul Stock Exchange National 100 Index from 2014 to 2018. 63 companies which exist in index during these five years have been searched for their capital structure and board structure. The data collected from public issues, reports and most importantly form audited financial statements. The type and composition of debt taken in account as key features for capital structure. As a result, it’s concluded that the financial leverage is affected positively with the size of the boards. On the other hand, there is significant negative relationship between financial leverage of company and the ratio of non-executive members in boards. Furthermore, the size of the board and ratio of foreign members effect the ratio of short term-long term debt by positive and negative respectively.
... These reults supported also by Li-Kai, Loai., Taurn, Mukherjee., and Wei, Wang., (2015) since they demonstrated that the higher level of financial leverage and a faster speed of adjustment toward the shareholders' desired level of capital structure are always associated with better corporate governance quality. Granado, P., Noelia.;Lopez, G., and Jose. ...
... ital structure. These reults supported also by Li-Kai, Loai., Taurn, Mukherjee., and Wei, Wang., (2015) since they demonstrated that the higher level of financial leverage and a faster speed of adjustment toward the shareholders' desired level of capital structure are always associated with better corporate governance quality. Granado, P., Noelia.;Lopez, G., and Jose. (2017), investigated the relationship between corporate governance and capital structure. They used a panel data of Spanish listed firms over the period 2005 to 2011 and focused on two major variables; the managerial ownership and the controlling shareholders ownership. Results demonstrated that there is a non-monotonic relationship between bo ...
There is a growing body of literature that recognises the importance of corporate governance practices on capital structure decisions. However, results are not consistent and only a few studies have been able to draw on any systematic research trying to quantify the relation between corporate governance practices and capital structure decisions and to acquire bits of knowledge of such relation of listed firms in Emerging Economies. Because of the fact that impact use of the corporate governance rules can have on capital structure decisions.The main driver of this research is to investigate the sound use of the Egyptian corporate governance practices on capital structure decisions of listed firms in Egypt over the period 2007 to 2016 utilizing a sample of 50 listed firms in EGX 100. Empirical results demonstrate the significant relationship between various inner and outer corporate governance practices and capital structure decisions of listed firms in Egypt. The findings were quantitatively approved through utilizing E-Views programming for examining panel data. Descriptive statistics, Multi-Collinearity test, Hausman test and multiple regression have been utilized to distinguish the major determinates of capital structure decisions and assess whether it has a significant impact on capital structure decisions.
... Haque et al. (2011) suggests that corporate governance affects capital structure and plays an important role in corporate financing decisions. Companies can achieve corporate objectives, protect shareholders' rights, and meet legal compliance requirements through a strong corporate governance structure (Alshbili & Elamer, 2019;Elamer et al, 2020;Granado-Peiro & Lopez-Gracia, 2017). ...
The widespread adoption of digital technology have catalyzed a surge in digital governance (DG). This paper aims to conduct a systematic analysis of 4,782 documents retrieved from the WOS database. Employing bibliometric methods, we unveil the landscape of hotspots, evolutionary trajectories, and emerging trends in DG research. Our findings indicate that the focal points of DG encompass corporate governance, digital finance governance, digital government governance, smart city governance, and Internet and digital platform governance. These topics exhibit a structural synergy, and interconnectedness, with data serving as the key. While there exist disparities in research emphasis across the evolution of distinct DG topics, the overarching trend suggests a shift in the field from localized to globalized governance. Moreover, the research perspective is transitioning from application-specific inquiries to the establishment of comprehensive governance systems. This transformation extends from singular, fragmented governance modes to innovative, synergistic models. International Internet governance, global digital governance, digital governance analysis framework, smart transformation of urban governance, and multi-dimensional collaborative governance represent pivotal directions for future research. By examining research status and intrinsic connection of each topic in DG, this endeavor aids researchers to grasp its development situation, rectify research gaps, and furnish invaluable references to advance theoretical inquiry and practical applications within the sphere of DG.
... 284). Previous research has established a correlation between concentrated investors during organizational crises and a reduction in insolvency risk (e.g., Iannotta et al., 2007), an improvement in firm performance (e.g., Gaur et al., 2015), and an increase in firm value, attributed to the effective monitoring capabilities of large investors (e.g., Granado-Peiró & López-Gracia, 2017). We propose that an increased concentration of investors during a crisis influences executives' behavior in a manner that guides them toward making decisions aimed at preventing relapse by mitigating risks that would be especially negative for these investors. ...
Many firms may successfully navigate an organizational crisis, but may find themselves entangled in another soon after. Building on a resource-dependence perspective, this study evaluates how certain investor characteristics foster organizational resilience during a crisis by preventing a relapse following recovery. Drawing on data from 2014 to 2019, we analyzed 359 firms that faced a crisis in 2015, as indicated by their Altman Z-score values. Our findings reveal that diversity and patience of investors prevent firms from relapsing into upcoming crises; however, the probability of relapse increases when concentrated investors boost the firm’s capital during the in-crisis period. We bridge the gap between the resource-dependence theory and literature on organizational resilience and contribute by extending previous analyses on the relevance of investors to recover from a crisis to identify how in-crisis investors’ features also state the foundations to avoid future relapses.
JEL CLASSIFICATION: D74; D81; G01; G32; P45
... It appears to have an impact on capital structure (CS) and is also crucial when deciding how to finance companies (Haque et al., 2011). Through a good practice of corporate governance, firms can be controlled and managed in effective way (Cadbury, 1992) and can also meet regulatory requirements, safeguard shareholders' interests, and reach their corporate goals and sustain economic development Granado-Peiró & López-Gracia, 2017;Sheikh;Wang, 2012). ...
Purpose: The objective of this paper is to investigate the association between corporate governance and capital structure. Theoretical framework: Since 1970, when the concept of corporate governance is introduced, the debate on whether it might affect capital structure have been ongoing. It is largely believed that in the real world, when effective cooperate governance adopted, strong capital structure can be achieved. Nonetheless, the experimental evidence reveals a variety of findings on such association. Design/Methodology/Approach: Panel data was collected form annual reports of 42 non-financial listed firms on Frankfort and Oslo stock exchange over the period 2017-2021. Ordinary Least Square (OLS) regression model is utilized to estimate the connection between dependent and independent variables. Findings: The finding shows that BS and AUCS are positively related with the capital structure and the result is significant. With respect to corporate governance, BM and BR with DTA have a negative and significant relationship. CEOC has positive but insignificant connection with DTA. Similarly, insignificant relationship between CEOT and DTA was observed. FS as a control variable has positive association with DTA, whereas the CR related DTA inversely. Despite the fact that, European firms mainly followed with a good corporate governance style if compared with developing countries, the results are still recommended further improvement for the firms in both countries in order to improve the financial position Research, practical & social implications: Future studies should focus on other corporate governance indicators that might affect capital structure significantly. It is also recommended for them to focus on financial firms and make a comparison between financial and non-financial firms. Originality/Value: By providing significant data for the impact of corporate governance on capital structure, this research contributes with existing literature on governance mechanism and management of capital structure. The findings will guide policymakers in various countries in determining the effectiveness of availability corporate governance reforms to enhance the structure of capital.
... Previous works found that board gender diversity, more specifically the number of female directors on the board, is relevant to decrease a firm's indebtedness (Granado-Peiró & López-Gracia, 2017;López-Delgado & Diéguez-Soto, 2018;Rossi, Hu, & Foley, 2017). This impact is more evident in family-managed firms, where family directors tend to increase their indebtedness (López-Delgado & Diéguez-Soto, 2018). ...
This investigation analyzes the impact of board gender diversity on the financial policies of non-financial Portuguese listed firms between 2010-2019. The study applies the two-step Generalized Method of Moments (GMM) for econometric analysis. The results show that board gender diversity affects firms’ capital structure. While female directors have no determinant role in defining firm indebtedness levels, they significantly contribute to its structure. Our results demonstrate that female directors, particularly those with executive roles, consistently contribute to reducing firms’ long-term debt and prefer to issue short-term debt. Moreover, female directors tend to manage trade over financial debt, especially in older firms. Independent female directors play a significant role in smaller firms by decreasing long-term and financial debt. The study supports the notion that gender diversity on the board contributes differently to the firms’ financial policies. Additionally, the findings are in line with the assumptions of agency, resource dependence, and pecking order theories. This study shows that gender diversity promotes short-term debt as a substitute for bank loans to avoid increasing firms’ risk, which ultimately impacts the definition of financial debt levels.
... Based on a report from Pricewater House Coopers in 2014 that 95% of businesses in Indonesia are family companies and this is common because it is managed purely and develops with a concentration of family ownership (Niki, 2016). The size of the company also varies, ranging from companies that consist of several holdings to companies that are in the form of megacorporations (Granado-Peiró & López-Gracia, 2017). More, Granado-Peiro & López-Gracia (2017) says that family companies cannot survive long or in other words only 30% of companies can survive for 50 years. ...
The goal of this study is to compare the financial performance, capital structure, and firm values of family versus non-family firms listed on the Indonesia Stock Exchange between 2020 and 2022. In this study, purposeful sampling was used, and data was analyzed using a pairwise sample methodology, comparing family and non-family firms. There is no difference in finance performance as measured by sales growth, sales, return on assets (ROA), return on equity (ROE), gross profit margin (GPM), and net profit margin (NPM), according to the findings of this study, but there are significant differences in total asset turnover (TATO). According to the capital structure, there is no difference in firm value as proxied by earnings per EPS share between family and non-family firms.
... Berdasarkan laporan dari Pricewater House Coopers pada tahun 2014 bahwa 95% bisnis di Indonesia merupakan perusahaan keluarga dan hal tersebut merupakan sesuatu yang lazim karena dikelola secara murni dan berkembang dengan konsentrasi kepemilikan keluarga (Niki, 2016). Ukuran perusahaan juga beragam mulai dari perusahaan yang terdiri dari beberapa kepemilikan sampai dengan perusahaan yang berbentuk megacorporation (Granado-Peiró & López-Gracia, 2017). Lebih lanjut, Granado-Peiró & López-Gracia (2017) mengatakan bahwa perusahaan keluarga tidak mampu bertahan lama atau dengan kata lain hanya 30% perusahaan yang mampu bertahan selama 50 tahun. ...
This study aims to determine the differences in the financial performance, capital structure, and firm value in family and non-family firms listed on the Indonesia Stock Exchange 2017-2019. The sampling method in this study used purposive sampling technique and data analysis used a pairwise sample methodology by comparing family and non-family firm. The results of this study indicate that there is no difference in finance performance as proxied by sales growth, sales, return on asset (ROA), return on equity (ROE), gross profit margin (GPM), net profit margin (NPM), but there are significant differences in total asset turn over (TATO). The capital structure also shows that there is no difference between the debt to total asset ratio (DAR) and the debt to total equity ratio (DER) proxy, but there is one significant proxy, namely pre-sales working capital and there is no difference in firm value as proxied by earning per share EPS between family and non-family firm.
... Before independent directors' executive monitoring became the dominant corporate governance agenda (Granado-Peir o & L opez-Gracia, 2017), most firms used to have multiple board insiders on their corporate boards. However, as focus shifted to executive monitoring, corporate board reforms across several countries led firms to reduce the board insiders' appointments (Fauver et al., 2017;Zorn et al., 2017). ...
Corporate governance research lacks clarity on why, when, and what types of firms appoint non‐CEO board insiders because of the primary academic focus on board independence. While executive monitoring is relevant, it is equally salient to understand why firms appoint non‐CEO insiders to the boards. This concern is especially relevant when firms face financial difficulties during periods of macro hardship. Using the corporate socialization theory, we suggest that board insiders likely generate firm‐specific private information by utilizing their long‐tenured firm‐focused corporate experience. It would result in a unique form of non‐fungible expertise that firms would find valuable during macro hardships. Employing a difference‐in‐difference research design, consistent with our theory, we document that when firms experience a cross‐country macro hardship such as an aggregate earnings shock, they appoint long‐tenured and firm‐focused non‐CEO board insiders. We further show that financially distressed firms have a higher demand for such directors.
... Peculiarities, influence on the corporation's activity and possible solutions to this problem are reflected in the works of such scientists as E.V. Frank [3], E. C. Claire, M. R. H. Jensen, J. S. Jahera, J. E. Raymond [4], Hongxia Li, Liming Cui [5], Pankaj M Madhani [6]. The issues of ownership structure, the relationship of ownership concentration with the capital structure and performance of the company are reflected in the works of Juan Gallegos Mardonesa, Gonzalo Ruiz Cuneo [7], Saleh F A Khatib, Dewi Feriha Abdullah, Ernie Hendrawaty, Ibrahim Suleiman Yahaya [8], Ali Al-Thuneibat [9], Noelia Granado-Peiró José López-Gracia [10]. However, in an economy with an underdeveloped financial market and weak development of corporate legislation, the concentration of ownership and the creation of an optimum structure of financial capital are pressing and interrelated issues of corporate management. ...
Introduction. Significantly important factors that define the company's efficiency are the structure of proprietorship and capital structure. Therefore, the item of the relationship between these factors is reflected in the works of scientists. The necessary issue is the pick of correlation between own and borrowed funds since the optimum structure of capital leads to magnification of the market value based on company performance results. The relevance of deciding on the capital structure determines the feasibility of determining the effect of concentrated ownership on capital structure. In an unstable political, social, legal, and economic environment, ownership concentration turns into a compensatory mechanism that fills numerous institutional gaps. Concentrated possession enables it possible to influence the capital structure through agency costs. Aim and tasks. The main purpose of the article is to determine the link between concentration level of ownership and capital structure, between ownership structure and leverage. This paper substantiates the problem of “principal-agent” to identify problematic issues to further develop recommendations to strengthen appropriate market incentives. Results. The paper shows that the problem of the “principal-agent” exists independently of the rate of ownership concentration in the corporation. Agency costs are one of the determining factors in the composition of a corporation’s capital. This paper has clearly shown approaches to identifying the nature of the effect of ownership structure on the capital structure. It has been established how this influence is carried out, taking into account the mismatch of various groups of owners' interests and the effect of their “entrenching”, as well as the consequences of monitoring and expropriation with a highly concentrated structure of ownership. Conclusions. The choice of the ratio of own and borrowed funds depends on the actual ownership structure. Assumptions are made, the increase in the corporation's leverage owing to an increase in the blockholders shares. There is a reciprocal interconnection between leverage and agency costs. Because changing leverage is an instrument that helps to overcome agency conflicts and not just only proves is the result of their presence. The selected special characteristics gave grounds to conclude that the adjustment of the ratio of a company's debt to the value of its equity also depends on the goal of management solutions, as well as the current facility and prospects of the corporation.
... Nevertheless, so far, the immense majority of research efforts have been devoted to investigating the influence of firm-specific and tax-related determinants, including but are not limited to the effects of earnings volatility, non-debt tax shields, growth, industry classification, size and profitability on the optimal capital structure (Titman and Wessels, 1988;Chen, 2004;Karadeniz et al., 2009;Ahmed Sheikh and Wang, 2011;Bevan and Danbolt, 2002;Noulas and Genimakis, 2011;Czerwonka and Jaworski, 2019). Moreover, comparatively few previous research, mostly in developed markets, have examined the impact of CG on the firm's capital structure (Dimitropoulos, 2014;Pindado and de La Torre, 2011;Hewa Wellalage and Locke, 2015;Granado-Peir o and L opez-Gracia, 2017). Contrariwise, a limited number of prior scholarly articles have been performed within developing countries (Wen et al., 2002;Ahmed Sheikh and Wang, 2012). ...
Purpose:
Motivated by the agency theory, this study aims to empirically examine the nexus between board attributes and a firm’s financing decisions of non-financial listed firms in Palestine and how the previous relationship is moderated and shaped by the level of gender diversity.
Design/methodology/approach:
Multiple regression analysis on a panel data was used. Further, we applied three different approaches of static panel data “pooled OLS, fixed effect and random effect.” Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the one-step system generalized method of moments (GMM) estimator. Dynamic panel GMM specification was superior in generating robust findings.
Findings:
The findings clearly unveil that all explanatory variables in the study model have a significant influence on the firm’s financing decisions. Moreover, the results report that the impact of board size and board independence are more positive under conditions of a high level of gender diversity, whereas the influence of CEO duality on the firm’s leverage level turned from negative to positive. In a nutshell, gender diversity moderates the effect of board structure on a firm’s financing decisions.
Research limitations/implications:
This study was restricted to one institutional context (Palestine); therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is possible to generate different findings in other countries, particularly in developed markets.
Practical implications:
The findings of this study can draw responsible parties and policymakers’ attention in developing countries to introduce and contextualize new mechanisms that can lead to better monitoring process and help firms in attracting better resources and establishing an optimal capital structure. For instance, entities should mandate a minimum quota for the proportion of women incorporation in boardrooms.
Originality/value:
This study provides empirical evidence on the moderating role of gender diversity on the effect of board structure on firm’s financing decisions, something that was predominantly neglected by the earlier studies and has not yet examined by ancestors. Thereby, to protrude nuanced understanding of this novel and unprecedented idea, this study thoroughly bridges this research gap and contributes practically and theoretically to the existing corporate governance–capital structure literature.
... To assess the reliability of the analysis, a robustness test was performed. According to prior methodological studies in the business and management field, the adoption of additional analysis in order to check the reliability of the findings represents an effective strategy in order to increase the overall rigor of the research [83,84]. ...
The paper aims to examine the moderating role of gender diversity within a corporate board on the relationship between tax aggressiveness and a firm’s corporate social responsibility (CSR) approach. This analysis was conducted using a set of indicators of financial statements of 168 Italian listed firms between 2011 and 2018. In addition, the sustainability reports of the same companies were observed. To perform the analysis a logit regression model is used. This paper shows different empirical results. First, this study notes that there is not a direct relationship between tax aggressiveness and CSR reporting. Second, gender diversity in a board of directors increases the orientation of companies to CSR disclosure, but does not have an impact on the relationship between tax aggressiveness and CSR disclosure. Instead, CEO gender has a positive influence on the relationship between corporate tax planning and CSR reporting in accordance with Global Reporting Initiative (GRI) standards. This study emphasizes the key role of gender diversity in the growth of the CSR approach and the reputation of companies. Therefore, governments and policymakers of major countries should promote gender diversity in corporate decision-making bodies, which contributes to achieving the Sustainable Development Goals (SDGs).
... On the other hand, poorly managed or failing firms are recommended to disinvest or liquidate, and dividend pay outs are one option of accomplishing this (Eastbrook, 1984). on indebtedness (Wen et al., 2002;Peiró & Gracia, 2016;Jiraporn & Gleason, 2007;Berger et al., 2012). ...
Do good corporate governance practices affect the amount of intermediated debt used by corporations and their dividend payout decisions? This study addresses the direct effects of corporate governance practices on both the indebtedness and the dividend pay-outs in corporations listed on the Bratislava Stock Exchange in 2015–2017 in Slovakia. Because of the relatively weakly developed stock market, the hypothesis is set only to found whenever there is a correlation between those variables. For analyzing the data, Spearman’s rank correlation was used because of the absence of normal distribution. Furthermore, authors adjusted the data set specifically in both cases to reflect more precisely the situation and increase the significance of the models. The most important result of this paper is the finding that the application of the corporate governance principles affects financial decisions of companies. There is a correlation between the responsible application of corporate governance principles and the total debt of companies. Also, there is a correlation between the responsible application of corporate governance principles and the amount of dividends paid to shareholders.
... Findings panel regression analysis show that ownership concentration is significant negative related to financial structure. ( Granado-Peiró & López-Gracia, 2017) the research investigates the relationship between corporate governance and capital structure of Spanish listed firms by using panel data over the period of 2005 to 2011. They used Panel fixed effects and system GMM and both specifications show a non-monotonic association between ownership concentration and capital structure. ...
Objective – The main objective of this study is to measure the relationship between ownership structure and capital structure by using the chemical sector of Pakistan.
Design – This study is used the panel data and retrieved from the annual reports of the chemical sector of Pakistan for the time period of 2012 to 2017.
Findings – The finding the statistical analysis shows that ownership structure has a significant positive relationship on capital structure. Which mitigate the agency conflicts among managers and shareholders, because the majority of the shareholders would like to have a higher level of debt over equity financing.
Policy Implications – The findings of this study also can be helpful to the policymakers, investors and financial institution in designing ownership structures and financing decisions for firms.
Originality – This is the first study that examined the relationship between ownership structure and capital structure in the context of the chemical sector of Pakistan.
... Second, from a theoretical and practitioner point of view, corporate governance is important in corporate decision-making and thus, should and is expected to influence corporate outcomes (Foss and Stea, 2014;Larcker et al., 2007). Indeed, this expectation is reflected in the large volume of studies that have investigated the effect of different corporate governance mechanisms on different managerial behaviour and corporate outcomes (e.g., Donadelli et al., 2014;Gompers et al., 2003;Granado-Peir? and L?pez-Gracia, 2017;Morck et al., 1988;Murphy, 1999;Serra et al., 2016;Yermack, 1996). However and as corporate governance is a complex 'concept' to operationalise, existing studies have either mostly employed single corporate governance mechanisms, such as board size and ownership structure (e.g., Morck et al., 1988;Yermack, 1996) or some form of arbitrarily constructed composite governance disclosure indices (e.g., Bebchuk et al., 2009;Gompers et al., 2003;Karpoff et al., 2016). ...
This paper first employs principal component analysis technique to develop and introduce an alternative UK corporate governance disclosure index to the US-centric ones. Second, we then investigate whether this new corporate governance disclosure index can determine the level of executive pay (including CEOs, CFOs, and all executive directors) in UK listed firms, and consequently ascertain whether the governance mechanisms can moderate the pay-for-performance sensitivity. Employing data on corporate governance, executive pay and performance from 2008 to 2013, we find that, on average, better-governed firms, tend to pay their executives lower compared with their poorly-governed counterparts. Additionally, our findings suggest that the pay-for-performance sensitivity is generally positive, but improves in firms with high corporate governance quality, implying that the pay-for-performance sensitivity is contingent on the quality of internal governance structures. We interpret our findings within the predictions of optimal contracting theory and managerial power hypothesis.
Keywords: corporate governance disclosure index; corporate performance; executive pay; endogeneity; principal component analysis, UK combined code. <br/
This study examines how board composition influences the capital structure of Jordanian manufacturing companies. It aims to fill a gap in the literature by providing insights from the Jordanian context. This research is based on the premise that corporate governance, represented by board composition, plays a crucial role in shaping capital structure decisions. It hypothesizes that factors like board size, tenure, independence, CEO duality, gender diversity, audit committees, and managerial ownership impact the use of leverage in these companies. Using a fixed-effects panel regression model, we collect data from Jordanian manufacturing firms listed on the ASE from 2015 to 2019. Statistical analysis helps us understand the relationship between board composition variables and capital structure decisions. Our analysis reveals important insights. Larger boards and longer-serving members tend to reduce a firm's reliance on debt. However, board independence, CEO duality, audit committees, gender diversity, and managerial ownership have an insignificant impact on capital structure decisions in Jordanian manufacturing firms. These findings have practical significance for regulators and financial managers. They enhance corporate governance practices in Jordan, where empirical evidence on corporate governance mechanisms is limited. Financial managers can make informed decisions about board composition and its potential effects on their firm's capital structure.
The purpose of this research is to identify and study good corporate governance practices at the Tirta Sago Payakumbuh Regional Public Water Company, which functions to implement the company's vision, mission, and goals, meet the expectations of relevant stakeholders, and illustrate the principles of transparency, accountability, responsibility, independence, and fairness-guidelines for implementing corporate governance. This research used a qualitative method with snowball sampling to find additional information sources. After data is collected through observation, interviews, and document analysis, analytical techniques are used to reduce, store, and draw conclusions. The research results show that public drinking water companies in the area have implemented good corporate governance practices, but not completely.
We examine impact of corporate governance on firm performance following the implementation of the changes to the Code of Corporate Governance of Pakistan in 2012. Our sample period from 2008 to 2022 include periods of political instability and shifts in Pakistan's political landscape, providing an opportunity to examine the effectiveness of corporate governance mechanisms in enhancing accounting‐ and market‐based firm performance measures. We find significant improvements attributed to reforms in the regulatory framework surrounding corporate governance practices particularly from expanded scope and composition of boards and audit committees. This led to broader capabilities and effective controls, thus improving firm performance and investor confidence more so during periods of political instability and changes in political ideology.
The article attempts to determine whether the increase in debt burden reduces the costs of agency conflicts in Russian public companies with various types of ownership. The subject is the relationship between the share of debt in the capital structure and the costs of agency conflicts. The main goal is to develop the ways to reduce the costs of agency conflicts in Russian companies by managing the capital structure, taking into account the ownership structure of these companies. To achieve this goal, the authors present the results of an empirical study to identify the impact of debt in Russian public companies on reducing the costs of agency conflicts, depending on the type of ownership structure. New results obtained during an empirical study of 109 Russian public companies for the period from 2016 to 2020 prove the influence of company's capital structure on the level of agency costs. Thus, it has been proven that debt has a significant negative impact on the costs of agency conflicts in companies with state, managerial and institutional types of ownership. The concentration of managerial ownership is also of high importance. The authors argue that debt is more effective at low (<25%) concentration of management ownership. In addition, the study proves a non-linear relationship between debt and the costs of agency conflicts. Accordingly, in order to increase the effectiveness of this instrument, it is necessary to find the optimal capital structure (for electric power companies, it is about 37%, while for other industries – about 25%). Finally, the authors offer recommendations regarding the management of capital structure in Russian companies in order to reduce the costs of agency conflicts. These results can be used in joint-stock companies by both shareholders and management to reduce the consequences of agency problem in companies.
This study aims to examine the impact of corporate governance mechanisms and ownership structure on Saudi-listed firms’ capital structure decisions. The study uses 420 firm-year observations from 70 Saudi non-financial listed firms from 2016 to 2021. Using agency theory, the study tests the impact of corporate governance mechanisms (board size, board independence, and CEO duality) and ownership structure (ownership concentration and managerial ownership) on the capital structure decisions of Saudi listed firms. Generalized Least Squares (GLS) and Generalized Method of Moments (GMM) regressions are used in this study to determine the relationship dynamics between corporate governance mechanisms and ownership structure on Saudi-listed firms’ capital structure decisions. The results show that board size in term of short-term debt (STD) ratio, board independence, CEO duality, firm size in term of short-term debt (STD) ratio, asset tangibility in terms of total debt (TD) and short-term debt (STD) ratios, firm liquidity, firm profitability, and firm age have a negative impact on corporate capital structure decisions, while board size in term of long-term debt (LTD) ratio, ownership concentration, managerial ownership, firm size in term of total debt (TD) and long-term debt (LTD) ratios, sales growth and asset tangibility in terms of long-term debt (LTD) ratio have a positive impact on capital structure decisions. Robustness tests also support the findings. The study provides guidance for policymakers and regulators in the development of laws, corporate governance codes, and/or institutional support designed to increase the efficiency of corporate governance mechanisms, as well as guidance for firm managers and investors interested in determining optimal firm capital structures. This paper contributes to both the corporate governance and capital structure literatures by presenting additional evidence on the impact of board structure and ownership structure on corporate capital structure decisions.
Purpose
The literature has dealt with the relationship between board characteristics (BC) and firm performance (FP) on a large scale. However, it yielded inconsistent results. Thus, this paper aims to examine the indirect relationship between BC and FP through the mediating role of the capital structure (CS).
Design/methodology/approach
This study used a sample of 528 non-financial companies listed on Bursa Malaysia from 2015 to 2019. Also, a two-step system generalised method of moments estimation technique was applied.
Findings
The results show that board diversity and the frequency of board meetings positively affect financial performance, and it is negatively influenced by board turnover, size and independence. Also, the results indicate a positive relationship between the independence of the board and all CS variables. Importantly, the findings support the policy-setting role of the board of directors where CS (measured by total debt and short-term debt) suppresses some governance mechanisms’ detrimental effect on FP. Hence, the board of directors, apart from the monitoring function, introduce various policies (financial and non-financial) that enhance the overall performance of companies.
Originality/value
These results are consistent with the agency’s perspective that management practices in selecting the optimal capital reduce agency costs and improve performance. The findings contribute to developing a broader theoretical framework that accounts for the policy-setting role of the board of directors. The current study model of corporate governance offers insight for policymakers into the role of corporate governance other than monitoring functions in organisations and how CS should be taken into consideration with corporate governance and FP association.
The main purpose of this study is to investigate the impact of board structure and ownership structure on capital structure of Shariah-compliant firms and Non-Shariah-compliant firms in Indonesia. The study used the Generalized Method of Moments to analyze the relationship by applying 2,739 data observations of non-financial companies registered on the Indonesia Stock Exchange. This study uses commissionaire size, director size, female director, female commissionaire, independent director, and independent commissionaire as proxies for board structure, and ownership concentration and government ownership for ownership structure. The results showed that for Sharia-compliant firms, the relevant determinants are all variables of board structure and ownership structure except independent director. For Sharia non-compliant firms, the only non-relevant determinants are female director and commissionaire size. Interestingly, most of the board structure variables in Shariah compliant firms indicate a strong negative relationship with capital structure of firms (except total commissionaire). This may indicate that board structure of Shariah compliant firms strives to lower the leverage level of the firm. This may also indicate that most managers of Shariah compliant firms are risk averse.
Purpose
This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.
Design/methodology/approach
The authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments.
Findings
The results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions.
Research limitations/implications
A larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases.
Practical implications
This study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them.
Originality/value
This study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.
The eclectic theory of entrepreneurship has identified several macro-determinants of national entrepreneurial activities. Taking advantage of the availability of new databases, several recent empirical studies have sought to test these determinants in multicountry studies using multivariate regression models. Due to the lack of consensus around their results, this paper posits that this empirical literature may be subject to endogeneity bias, which seriously threatens its accuracy, consistency, and reliability, as well as the effectiveness of the resulting management and policy recommendations. Consequently, we methodologically demonstrate why and how endogeneity occurs in these studies by analyzing their empirical and theoretical models. We also provide a step-by-step guide to help researchers understand how to detect and correct endogeneity using IV techniques applied to a panel data analysis of the macro-determinants of early-stage entrepreneur-ship in a sample of 48 countries between 2000 and 2019. A 'toolkit' of generic STATA software commands specifying the tests, methods, and assumptions performed in this analysis is included. In doing so, we aim to raise awareness of endogeneity bias among researchers and to empirically guide future studies in order to avoid its hazards. Finally, after correcting for endogeneity, our analysis identifies the protection of property rights, entrepreneurial culture, income, and economic development as the most consistent macro-determinants of early-stage entrepreneurship, providing important policy and business insights.
ABSTRAK Struktur modal merupakan suatu hal yang sangat penting bagi suatu perusahaan terutama untuk keuangan dan nilai perusahaan sehingga manajer keuangan harus memahami faktor-faktor yang mempengaruhi struktur modal agar dapat memaksimalkan kemakmuran para pemegang saham perusahaan. Tujuan dari penelitian ini adalah untuk mengetahui bagaimana pengaruh pertumbuhan penjualan dan tarif pajak terhadap struktur modal pada perusahaan makanan dan minuman yang terdaftar di Bursa Efek Indonesia (BEI) periode 2013-2017. Penelitian ini menggunakan leverage sebagai proksi dari struktur modal. Analisis regresi yang digunakan adalah analisis regresi linier berganda. Berdasarkan pembahasan hasil penelitian, pertumbuhan penjualan berpengaruh signifikan terhadap struktur modal dan tarif pajak tidak berpengaruh terhadap struktur modal pada perusahaan makanan dan minuman. Kata Kunci : Struktur Modal, Pertumbuhan Penjualan, Tarif Pajak ABSTRACT Capital structure is a very important for a company, especially for finance and company value, so that financial managers must understand the factors that influence the capital structure in order to maximize the prosperity of the company’s shareholders. The purpose of this research was to find out how the effect of sales growth and tax rate on the capital structure of food and beverages companies listed on the Indonesia Stock Exchange for the period 2013-2017. This research uses leverage as a proxy of the capital structure. The regression analysis used is multiple linear regression analysis. Based on the discussion of the results of the research, the sales growth has a significant effect on the capital structure and the tax rate has no effect on the capital structure of the food and beverages companies. Keywords : Capital Structure, Sales Growth, Tax Rate
Objective-This study interrogates the relation between ownership structure and financial structure by using the non financial services sector of Nigeria. Design-This study used the panel data extracted from the annual reports and accounts of the non financial services sector of Nigeria for the time period of 2012 to 2021. Findings-The key finding shows that ownership structure has a significant positive relationship on financial structure. This result mitigates the agency conflicts among managers and shareholders, because the majority of the shareholders would like to have a higher level of debt over equity financing. Policy Implications-The findings of this study also can be helpful to the r e g u l a t o r s , policymakers, investors and financial institutions in designing ownership structures and financing decisions for corporations. Originality-This is the first study that examined the relationship between ownership structure and financial structure in the context of the non financial services sector of Nigeria.
Purpose
This study aims to examine the relationship between corporate governance mechanisms and the capital structure of Latin American firms.
Design/methodology/approach
The sample included companies from Argentina, Brazil, Chile, Colombia, Mexico and Peru. The authors collected data from 201 non-financial companies between 2009 and 2018, totalizing 1,716 firm-year observations. The data were analyzed using descriptive statistics and linear regression models with panel data.
Findings
The main results indicated that chief executive officer duality, legal protection system and corporate social responsibility voluntary disclosure impact the firm's total debt ratio, corresponding to a positive effect for the first two variables and a negative for the last.
Originality/value
This study advances in two main ways. Firstly, due to the broad approach in which the authors addressed corporate governance, involving board composition, ownership structure, minority shareholders legal protection system and information disclosure. Secondly, by presenting empirical evidence about the effects of corporate governance on capital structure from an extensive sample of Latin American firms, the authors expect to contribute to the international debate on the capital structure due to the unique characteristics of Latin America in this regard.
In this paper, we study the reverse U-shaped relationship between Corporate Social Responsibility (CSR) and firms’ use of equity capital. Using a large sample of U.S. publicly listed companies, we provide strong evidence that CSR is positively associated with the use of equity capital when CSR practices are below a certain level. Once the CSR investment exceeds this level, the relationship between CSR and the equity financing becomes negative. Our findings are robust when we use the individual components of CSR, and several approaches to address endogeneity. Overall, our results enrich the debate about capital structure of high CSR firms and suggest that the CSR-capital structure relationship is more complex than what has been demonstrated in previous literature.
Purpose
This paper contributes to the existing literature by extending the empirical work on the relationship between corporate governance and capital structure by analyzing the mediating role of cost of capital in the non-financial firms listed on the Pakistan Stock Exchange (PSX).
Design/methodology/approach
The sample for this study includes non-financial firms listed on the Pakistan Stock Exchange (formerly Karachi Stock Exchange) for the period of 2004–2016. Based on 1800 firm-year observations, three approaches of panel data analysis are applied for the step-wise analysis of the underlying study. Firstly, Pooled OLS is applied. Secondly, fixed and random effect panel regression followed by the Hausman test to check the unobservable individual heterogeneity of the data. Hausman test indicates that the fixed-effects model is the most appropriate model for the sample panel data.
Findings
The study's findings are that board size, board composition, CEO/Chair duality, institutional ownership and managerial ownership have statistically significant direct effect on the firm's financing decisions. However, CEO/Chair duality, institutional ownership and managerial ownership have significant indirect effect on firm's capital structure decisions. The interesting finding of the paper is on the evidence of mediating role of cost of capital in the nexus of corporate governance and capital structure. Moreover, some conventional determinants of capital structure, including the firm's size, asset structure of the firm, profitability, business risk and growth, are found as determinants of capital structure decisions of the firms.
Research limitations/implications
There are a few limitations to our study which could be addressed by upcoming research. We did not include all the four mechanisms of corporate governance including board structure, audit structure, compensation structure and ownership structure. However, we used only five important attributes including board size, board composition and CEO/Chair duality form board structure, managerial ownership and institutional ownership form ownership structure of corporate governance as our explanatory variables to examine their impact on the capital structure choices of the firms. Future studies may fill this research gap by involving some other attributes of corporate governance and analyzing their effectiveness and impact on value relevant capital structure decisions. Further, due to limited time and resources, we only tested the mediating role of cost of capital, hence, future researchers can analyze the mediating and moderating roles of different variables which may influence the relationship between corporate governance and capital structure choices of the firms.
Practical implications
The study has many valuable guidelines and practical implications for the financial managers of the corporations. Our results will facilitate the policymakers in setting their corporate governance policies and practices and making the value relevant capital structure decisions in compliance with the implications of corporate governance mechanism. In addition, our study provides the empirical evidence in accordance with the argument that good governance practices, particularly the voluntary disclosures by the firm may reduce the information asymmetry which, ultimately, reduces the agency cost and the cost of capital for the firm. However, while deciding the financial policy of the corporations, managers can use our findings in order to assess the effectiveness of corporate governance practices employed by the firm in achieving the optimal capital structure at which the weighted average cost of capital is at its minimum level.
Originality/value
This paper contributes to the literature by investigating the mediating role of the cost of capital in the relationship between corporate governance and capital structure decisions of the firms. This paper provides empirical evidence that corporate governance indirectly affects capital structure decisions through the mediating role of cost of capital.
The study aims to examine the relationship between corporate ownership structure and capital structure of BSE listed manufacturing firms in India. The study has included the sample of 357 companies which covers 16 major sectors during the period of 2006–2015. Considering the dynamic panel nature of the data relating to the capital structure and the ownership structure variables. The analysis undertakes a novel approach of examining the determinants both single equation and reduced equation models. In order to determine the most appropriate model, based on the F test, the Breusch Pagan LM test and finally the Hausman Test is conducted. The Hausman test result has been estimated by the fixed effect model is better than the other two models such as pooled OLS and random effect estimation. Based on the fixed effects results, size, risk and profitability have a highly significant relationship with leverage. Meanwhile, the growth opportunities and tangibility represent insignificant values. The study found that the explanatory variables of the promoters’ ownership and the institutional ownership have a negative impact on leverage, while the corporate ownership has a positive influence on the capital structure decision. The individual or public ownership has a negative and significantly related to the capital structure, whereas the effect of the foreign ownership inversely related to the firm’s leverage.
Purpose
This paper aims to contribute to the existing capital structure and board structure literature by examining the relationship among corporate governance, ownership structure and capital structure.
Design/methodology/approach
The paper uses a panel data of 595 firm-year observations from a unique and comprehensive data set of 119 Chinese real estate listed firms from 2014 to 2018. It uses fixed effect and random effect regression analysis techniques to examine the hypotheses.
Findings
The results show that the board size, ownership concentration and firm size have positive influences on capital structure. State ownership and firm profitability have inverse influences on capital structure.
Research limitations/implications
The findings suggest that better-governed companies in the real estate sector tend to have better capital structure. These findings highlight the unique Chinese context and also offer regulators a strong incentive to pursue corporate governance reforms formally and jointly with the ownership structure. Finally, the results suggest investors the chance to shape detailed expectations about capital structure behavior in China. Future research could investigate capital structure using different arrangement, conducting face-to-face meetings with the firm’s directors and shareholders.
Practical implications
The findings offer support to corporate managers and investors in forming or/and expecting an optimal capital structure and to policymakers and regulators for ratifying laws and developing institutional support to improve the effectiveness of corporate governance mechanisms.
Originality/value
This paper extends, as well as contributes to the current capital structure and corporate governance literature, by proposing new evidence on the effect of board structure and ownership structure on capital structure. The results will help policymakers in different countries in estimating the sufficiency of the available corporate governance reforms to improve capital structure management.
Abstract
Purpose – This paper seeks to contribute to the existing capital structure and board structure literature by examining the relationship among corporate governance, ownership structure and capital structure.
Design/methodology/approach – The paper employs a panel data of 595 firm-year observations from a unique and comprehensive dataset of 119 Chinese real estate listed firms from 2014 to 2018. It uses fixed effect and random effect regression analysis techniques to examine the hypotheses.
Findings - The results show that the board size, ownership concentration and firm size have positive influences on capital structure. State ownership and firm profitability have inverse influences on capital structure.
Research limitations/ implications – The findings suggest that better-governed companies in the real estate sector tend to have better capital structure. These findings highlight the unique Chinese context and also offer regulators a strong incentive to pursue corporate governance reforms formally and jointly with ownership structure. Lastly, the results suggest investors the chance to shape detailed expectations about capital structure behaviour in China. Future research could investigate capital structure using different arrangement, conducting face-to-face meetings with the firm’s directors and shareholders.
Practical implications– The findings offer support to corporate managers and investors in forming or /and expecting an optimal capital structure, and to policymakers and regulators for ratifying laws and developing institutional support to improve the effectiveness of corporate governance mechanisms.
Originality / value – This paper extends, as well as contributes to the current capital structure and corporate governance literature, by proposing new evidence on the effect of board structure and ownership structure on capital structure. The results will help policymakers in different countries in estimating the sufficiency of the available corporate governance reforms to improve capital structure management.
Keywords: Corporate governance; agency theory; board structure; ownership structure; capital structure
Abstract
Purpose-This paper seeks to contribute to the existing capital structure and board structure literature by examining the relationship among corporate governance, ownership structure and capital structure.
Design/methodology/approach-The paper employs a panel data of 595 firm-year observations from a unique and comprehensive dataset of 119 Chinese real estate listed firms from 2014 to 2018. It uses fixed effect and random effect regression analysis techniques to examine the hypotheses.
Findings-The results show that the board size, ownership concentration and firm size have positive influences on capital structure. State ownership and firm profitability have inverse influences on capital structure.
Research limitations/ implications-The findings suggest that better-governed companies in the real estate sector tend to have better capital structure. These findings highlight the unique Chinese context and also offer regulators a strong incentive to pursue corporate governance reforms formally and jointly with ownership structure. Lastly, the results suggest investors the chance to shape detailed expectations about capital structure behaviour in China. Future research could investigate capital structure using different arrangements, conducting face-to-face meetings with the firm's directors and shareholders.
Practical implications-The findings offer support to corporate managers and investors in forming or /and expecting an optimal capital structure, and to policymakers and regulators for ratifying laws and developing institutional support to improve the effectiveness of corporate governance mechanisms.
Originality / value-This paper extends, as well as contributes to the current capital structure and corporate governance literature, by proposing new evidence on the effect of board structure and ownership structure on capital structure. The results will help policymakers in different countries in estimating the sufficiency of the available corporate governance reforms to improve capital structure management.
This study examines the impact of corporate governance, reflecting a wide spectrum of board characteristics and ownership structure on agency costs in 281 listed companies on Ho Chi Minh Stock Exchange (HOSE) in Vietnam in the period 2013–2018. For this purpose, three board characteristics were chosen: (1) the size of board of directors, (2) equilibrium between non-executive and executive members of the board of directors, (3) the CEO chair duality and three types of ownership structures were chosen: (1) management ownership, (2) government ownership, (3) foreign ownership. An inverse proxy of agency costs is used: asset utilization ratio (asset turnover), which reflects the managerial efficiency. The research methodology includes three statistical approaches: Ordinary least squares (OLS), fixed effects model (FEM) and random effects model (REM) are considered to employ to address econometric issues and to improve the accuracy of the regression coefficients. The results can create effective corporate governance mechanisms in controlling the managerial opportunistic behavior to lower agency conflicts, and hence lower agency costs.
We investigate the effects of bank power, block ownership and board independence on the likelihood of financial distress. Using a matched sample, we find that firms in which banks have power are more likely than their counterparts to enter financial distress. However, the bank power effects are moderated by block ownership and board independence. Specifically, on the one hand, financial distress due to bank power is lower for firms with greater ownership by pressure resistant blockholders and such blockholders appear to be the largest blockholder in the firm. The bank power effects are also lower in firms with greater outside directors and this appears to be primarily driven by proprietary directors than independent directors. On the other, we document evidence suggesting that the bank power effects are magnified for firms in which the board chair is a proprietary director aligned to non-financial blockholders or CEO/Chair, suggesting that banks might partly influence decisions via board chairs. Overall, the findings are consistent with bank power actions being detrimental to the firm, but the extent to which such actions harm the firm depends on the monitoring intentions of blockholders and/or board of directors. These findings have important implications for policymakers.
This research is conducted to investigate the impact of corporate governance on stock price synchronicity in the context of the Vietnamese market. The paper tests four hypotheses proposing the effect of four crucial components of corporate governance including board size, board independence, managerial ownership, and foreign ownership on stock price synchronicity. The study sample includes 247 non-financial listed companies on the Ho Chi Minh Stock Exchange (HOSE) in Vietnam over a period of five years from 2014 to 2018. The fixed effects model is employed to address econometric issues and to improve the accuracy of the regression coefficients. The research results show the positive impact of board size and foreign ownership but the negative impact of managerial ownership on stock price synchronicity. This study confirms the viewpoint that stocks in the market move more together when the firms’ corporate governance gets better. In other words, the research findings suggest that low synchronicity signifies the corporate intransparency and weak information environment and vice versa. From this, the paper provides a new insight to managers on how to improve stock price synchronicity with corporate governance.
This study examines the relationship between corporate governance quality and capital structure of firms listed on the S&P/TSX composite index between 2009 and 2012. Using an aggregate corporate governance index, this study finds support for the outcome hypothesis, which argues that capital structure is an “outcome” of corporate governance quality. Governance quality is found to be positively associated with firms’ leverage. Firms with lower governance quality have lower leverage as these firms’ managers do not like to have only little free cash flow leftover or have extra constraints imposed by debt financing. In contrast, firms with higher governance quality are more leveraged because these firms have lower agency costs and thus lower cost of debt financing. As a result, they can take on more debts. The empirical evidence from this study illuminates important links between governance quality and financing decisions of firms.
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics of Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of (reasonably) exogenous historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
Purpose
– To identify the specific sources of occupational stress and the professional burnout experienced by teachers working in Greek primary and secondary schools. A special emphasis is given to gender and age differences. Design/methodology/approach – A cross‐sectional design was used. Two self‐report measures were administered to a sample of 493 primary and secondary school teachers, a self‐report rating scale of specific occupational stressors and the Maslach Burnout Inventory (education version).
Findings
– The most highly rated sources of stress referred to problems in interaction with students, lack of interest, low attainment and handling students with “difficult” behaviour. Female teachers experienced significantly higher levels of occupational stress, specifically with regard to interaction with students and colleagues, workload, students' progress and emotional exhaustion. Younger teachers experienced higher levels of burnout, specifically in terms of emotional exhaustion and disengagement from the profession, while older teachers experienced higher levels of stress in terms of the support they feel they receive from the government.
Practical implications
– The findings will help to implement effective primary and secondary level prevention programmes against occupational stress taking into account how males and females and younger and older teachers perceive stress at work.
Originality/value
– The study is a significant addition to the teacher stress and burnout literature, especially in Greece where few relevant studies exist dealing with these problems.
This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.
Manuscript Type: Review
Research Question/Issue: This review examines how gender diversity on corporate boards influences corporate governance outcomes that in turn impact performance. We describe extant research on theoretical perspectives, characteristics, and impact of women on corporate boards (WOCB) at micro, meso, and macro levels: individual, board, firm, and industry/environment.
Research Finding/Results: To the best of our knowledge, this is the first comprehensive review of WOCBs, incorporating and integrating research from over 400 publications in psychology, sociology, leadership, gender, finance, management, law, corporate governance, and entrepreneurship domains. In addition, we organized our findings to provide a new lens enabling the field to be readily examined by level and by theoretical perspective. The review indicates that WOCB research is about improving corporate governance through better use of the whole talent pool's capital, as well as about building more inclusive and fairer business institutions that better reflect their present generation of stakeholders.
Theoretical Implications: With only one in 10 papers addressing theoretical development, the predominant perspectives are human and social capital theories and gender schema at the individual level; social identity, token, and social networks theories at board level; resource dependency, institution, and agency theories at the firm level; and institutional, critical, and political theories at the environmental level. We provide a short synopsis of findings at each level, and conclude with an outline of fruitful directions for future research.
Practical Implications: There are increasing pressures for WOCBs from diverse stakeholders, such as the European Commission, national governments, politicians, employer lobby groups, shareholders, Fortune and FTSE rankings, best places for women to work lists, as well as expectations from highly qualified women who are likely to leave if they see no women board members. Rationales generally draw on the business case; however, the moral justice case is also used by those who seek a fairer gender balance in all aspects of society. From our review, the “Impact” section charts the effect of WOCB at all four levels of analysis.
We develop a positive theory of the hedging behavior of value-maximizing corporations. We treat hedging by corporations simply as one part of the firm's financing decisions. We examine (1) taxes, (2) contracting costs, and (3) the impact of hedging policy on the firm's investment decisions as explanations of the observed wide diversity of hedging practices among large, widely-held corporations. Our theory provides answers to the questions: (1) why some firms hedge and others do not; (2) why firms hedge some risks but not others; and (3) why some firms hedge their accounting risk exposure while others hedge their economic value.
Although recent literature has confirmed the importance of viewing a firm’s capital structure choices of leverage and debt
maturity as jointly determined, to date there has been little analysis of the importance of traditional governance variables
on a firm’s capital structure decisions using a simultaneous equations approach. We examine the influence of managerial incentives,
traditional managerial monitoring mechanisms and managerial entrenchment on the capital structure of Real Estate Investment
Trusts (REITs). Using panel data, we estimate a system of simultaneous equations for leverage and maturity and find that firms
with entrenched CEOs use less leverage and shorter maturity debt. This is consistent with the expectation that managers acting
in their own self interest will choose lower leverage to reduce liquidity risk and use short maturity debt to preserve their
ability to enhance their compensation and reputations by empire building. We also find evidence that traditional alignment
mechanisms such as equity and option ownership have an offsetting effect; and that firms where the founder serves as CEO choose
higher leverage and longer maturity debt. The results also provide evidence that leverage and maturity are substitutes, firms
with high profitability and growth opportunities use less leverage and firms with liquid assets use more leverage and longer
maturity debt.
KeywordsEntrenchment–Managerial incentives–Corporate governance–Capital structure–REIT
This paper analyzes the effect of bank market concentration and institutions on capital structure in 39 countries. Results for 12,049 firms over 1995–2004 indicate that firm leverage increases with greater bank concentration and stronger protection of creditor rights, but drops with stronger protection of property rights. The results also indicate that greater bank concentration substitutes for creditor protection and asset tangibility to reduce the agency cost of debt between shareholders and debtholders. Weaker protection of property rights raises the agency cost of external funds, leading to the preferential use of internal funds as posited by the pecking order theory. The trade-off theory, however, is more valid in countries with stronger protection of property rights.
The empirical literature provides conflicting assessments about how firms choose their capital structures. Distinguishing among the three main hypotheses (“tradeoff”, pecking order, and market timing) requires that we know whether firms have long-run leverage targets and (if so) how quickly they adjust toward them. Yet many previous researchers have applied empirical specifications that fail to recognize the potential for incomplete adjustment. A more general, partial-adjustment model of firm leverage indicates that firms do have target capital structures. The typical firm closes about one-third of the gap between its actual and its target debt ratios each year.
This article surveys the seventeen papers in this special issue of the Journal of Financial Economics, and related work. The major findings are: (1) patterns of stock ownership by insiders and outsiders can influence managerial behavior, corporate performance, and stockholder voting in election contests; (2) corporate leverage, inside stock ownership by managers, and the control market are interrelated; (3) departures from one share/one vote affect firm value and efficiency; (4) takeover resistance through defensive restructurings or poison pill provisions is associated with declines in share price; and (5) top management turnover is inversely related to share price performance.
Many theories have been proposed to explain how corporate boards are structured. This paper groups these theories into three hypotheses and tests them empirically. We utilize a unique panel dataset that tracks corporate board development from the time of a firm's IPO through 10 years later. The data indicate that: (i) board size and independence increase as firms grow in size and diversify over time; (ii) board size - but not board independence - reflects a trade-off between the firm-specific benefits of monitoring and the costs of such monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on such influence. These results are consistent with the view that economic considerations - in particular, the specific nature of the firm's competitive environment and managerial team - help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained even when all three hypotheses are combined, suggesting that idiosyncratic factors affect many individual boards' characteristics.
The purpose of the paper is to examine the effect of founding-family control on the cost of bank debt. We examine the cost of accessing the syndicated market, and we use the financial crisis and the unexpected nature of Lehman Brother's collapse as a laboratory in order to tease out the effect of family ownership. We find the increase in loan spreads around the Lehman crisis was at least 24 basis points lower for family firms. Furthermore, the gap in spreads among family and non-family firms becomes wider among firms that had pre-crisis relationships with lenders with higher exposure to the shock. The evidence is consistent with family ownership lowering the cost of accessing debt financing, especially when lenders are constrained. We further investigate potential channels that drive the effect of family ownership. We provide novel evidence that for 17% of the family firms, creditors impose explicit restrictions in private credit agreements that require the founding family to maintain a minimum percentage of ownership or voting power. Thus, creditors value the presence of the family. Furthermore, the impact of family control on lowering the cost of bank debt is higher when family CEOs run the firms and among firms with higher ex-ante agency conflicts.
The system GMM estimator for dynamic panel data models combines moment conditions for the model in first differences with moment conditions for the model in levels. It has been shown to improve on the GMM estimator in the first differenced model in terms of bias and root mean squared error. However, we show in this paper that in the covariance stationary panel data AR(1) model the expected values of the concentration parameters in the differenced and levels equations for the cross-section at time t are the same when the variances of the individual heterogeneity and idiosyncratic errors are the same. This indicates a weak instrument problem also for the equation in levels. We show that the 2SLS biases relative to that of the OLS biases are then similar for the equations in differences and levels, as are the size distortions of the Wald tests. These results are shown to extend to the panel data GMM estimators. © The Author(s). Journal compilation
This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market-to-book assets ratio (-), tangibility (+), profits (-), log of assets (+), and expected inflation (+). In addition, we find that dividend-paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market-to-book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade-off theory of capital structure.
This article, which introduces the special issue on corporate governance cosponsored by the Review of Financial Studies and the National Bureau of Economic Research (NBER), reviews and comments on the state of corporate governance research. The special issue features seven articles on corporate governance that were presented in a meeting of the NBER's corporate governance project. Each of the articles represents state-of-the-art research in an important area of corporate governance research. For each of these areas, we discuss the importance of the area and the questions it focuses on, how the article in the special issue makes a significant contribution to this area, and what we do and do not know about the area. We discuss in turn work on shareholders and shareholder activism, directors, executives and their compensation, controlling shareholders, comparative corporate governance, cross-border investments in global capital markets, and the political economy of corporate governance.
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
Evidence from firms in 47 countries shows that companies with political connections have higher leverage and higher market shares, but they underperform compared to non-connected companies on an accounting basis. Differences between connected and unconnected firms are more pronounced when political links are stronger. Differences also vary depending on the level of corruption and the degree of economic development in individual countries.
The recent business trends of globalization and increasing ethnic and gender diversity are turning managers' attention to the management of cultural differences. The management literature has suggested that organizations should value diversity to enhance organizational effectiveness. However, the specific link between managing diversity and organizational competitiveness is rarely made explicit and no article has reviewed actual research data supporting such a link. This article reviews arguments and research data on how managing diversity can create a competitive advantage. We address cost, attraction of human resources, marketing success, creativity and innovation, problem-solving quality, and organizational flexibility as six dimensions of business performance directly impacted by the management of cultural diversity. We then offer suggestions for improving organizational capability to manage this diversity.
This paper compares the characteristics of U.S. firms which issued equity between 1976 and 1993 to those which increased their use of debt financing. We find that fims are most likely to issue debt when they have less debt than ispredicted by a cross-sectional model. In addition, firms that were very profitable prior to the issue were more likely to increase their use of debt financing and those that accumulated loses tended to issue equity. Our results also confirm previous findings that firms are most likely to issue equity after experiencing a rise in their share price. In contrast to our other findings, this last result appears to be inconsistent with the hypothesis that firms select their capital structures by trading off tax and other advantages of debt financing with financial distress and other costs associated with debt. Results on samples stratified by different proxies for asymmetric information fails to support asymmetric information based explanations for this phenomena.
We exploit differences in European mortality rates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlled for, countries in Africa or those closer to the equator do not have lower incomes. (JEL O11, P16, P51).
While most companies acknowledge the importance of making diversity a business consideration, diversity is often not a top business priority. Other business initiatives that present more compelling, factual evidence of payback on investment win out over diversity initiatives, which seem to offer less predictable and tangible benefits. As a result, many human resource executives revert to the argument that "it's the right thing to do" and trust that management will back their suggestions to promote a diversity-friendly work environment, then wonder why nothing happens or why well-intended initiatives fail. The presentation of a solid business case increases the likelihood of obtaining the leadership commitment and resources needed to successfully implement diversity initiatives.
Grounded in agency theory, this study investigates whether staggered boards influence capital structure choices. Leverage has been argued and shown to alleviate agency costs. As staggered boards can entrench inefficient managers, they may motivate managers to adopt a lower level of debt, thereby avoiding the disciplinary mechanisms associated with leverage. The empirical evidence supports this hypothesis, showing that firms with a staggered board are significantly less leveraged than those with a unitary board. We also find that the impact of staggered boards on capital structure choices exists both in industrial and regulated firms although it seems to vanish after the enactment of the Sarbanes-Oxley Act. Cognizant of possible endogeneity, we show that staggered boards likely bring about, and do not merely reflect, lower leverage. Finally, we explore whether firm value is affected by abnormal leverage that can be attributed to the presence of staggered boards. The results demonstrate no significant adverse impact on firm value due to excess leverage.
We estimate a dynamic capital structure model to ascertain whether agency conflicts can explain corporate financing decisions. The model features corporate and personal taxes, refi-nancing and liquidation costs, costly debt renegotiation, and allows managers to capture part of the firm's cash flows as private benefits within the limits imposed by shareholder protec-tion. The analysis demonstrates that private benefits of control lead managers to issue less debt and rebalance capital structure less often than optimal for shareholders. Using data on financing choices and the model's predictions for different moments of leverage, we find that private benefits or agency costs of 1.02% of equity value on average (0.23% at median) are suf-ficient to resolve the conservative debt policy puzzle and to explain the time series of observed leverage ratios. We also find that the variation in agency costs across firms is sizeable and that governance mechanisms significantly affect the value of control and firms' financing decisions.
This paper provides theory and empirical evidence supporting a complementary perspective on capital structure based on corporate ownership structure. According to our ownership view, capital structure is partly determined by the incentives and the goals of those who are in control of the firm. Our results strongly support this view. As a consequence of managerial entrenchment and rent expropriation phenomena, self‐interested agents (entrenched managers and controlling owners) chose the capital structure most appropriate for their own best interest. Additionally, we find evidence of an interaction effect between managerial ownership and ownership concentration, in particular, the larger debt increments promoted by outside owners when managers are entrenched.
This aim of this article is to describe, in the Spanish setting, family ownership and to explore how families hold their shares (the use of indirect ownership, pyramids, and cross-shareholdings). It also seeks to describe to what extent cash-flow rights differ from control rights and the degree of the firm's professionalization according to every type of owner category, but especially for families.
We develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using panel data on leverage choices and the model's predictions for different statistical moments of leverage, we show that while refinancing costs help explain the patterns observed in the data, their quantitative effects on debt choices are too small to explain financing decisions. We also show that by adding agency conflicts in the model and giving the manager control over the leverage decision, one can obtain capital structure dynamics consistent with the data. In particular, we find that the model needs an average agency cost of 1.5% of equity value to resolve the low-leverage puzzle and to explain the time series of observed leverage ratios. Our estimates also reveal that the variation in agency costs across firms is sizeable and that the levels of agency conflicts inferred from the data correlate with commonly used proxies for corporate governance.
Manuscript Type: Empirical
Research Question/Issue: We examine whether corporate governance plays a role in influencing a firm's choice of financing, i.e., equity versus debt. We hypothesize that the likelihood of equity financing increases with governance because of a reduction in agency costs between investors and managers in these firms. While the reduction in agency costs occurs for both equity and debt financing, we argue that there is a more significant effect on equity financing.
Research Findings/Insights: Using a sample of over 2,000 US equity and debt issuances over the period 1998 to 2006, we find that our measures of corporate governance effectiveness have a positive impact on the likelihood of choosing equity compared to debt. This association is more pronounced in small firms where information asymmetry is higher between managers and investors.
Theoretical/Academic Implications: Our findings refine and extend the pecking order hypothesis, which suggests that firms will issue equity as their last resort because of the high information asymmetry associated with equity financing. We provide some of the first evidence that the pecking order hypothesis can be mitigated by corporate governance. Specifically, we find that the likelihood of issuing equity increases as governance increases. Further, we find that where agency costs due to information asymmetry are greater, the positive impact of governance on the likelihood of equity financing is also greater. That is, in support of agency cost theory, we find that firms facing high agency costs benefit the most from investing in corporate governance mechanisms that lower the agency costs. We are not aware of any prior study, published or unpublished, that has documented this result.
Practitioner/Policy Implications: From a practical perspective, our study suggests that firms wishing to access equity capital markets should pay attention to their corporate governance. Specifically, by investing in corporate governance systems, firms facing high agency costs may be able to obtain easier access to not just debt but also equity markets. From a practice standpoint, in the years prior to securing financing, firms should consider making improvements to their governance (e.g., changes to board structure and/or auditor), carefully weighing the costs of making these improvements against the benefits of securing better and cheaper access to equity markets.
This paper, which introduces the special issue on corporate governance co-sponsored by the Review of Financial Studies and the National Bureau of Economic Research (NBER), reviews and comments on the state of corporate governance research. The special issue feature seven papers on corporate governance that were presented in a meeting of the NBER‘s corporate governance project. Each of the papers represents state-of-the-art research in an important area of corporate governance research. For each of these areas, we discuss the importance of the area and the questions it focuses on, how the paper in the special issue makes a significant contribution to this area, and what we do and do not know about the area. We discuss in turn work on shareholders and shareholder activism, directors, executives and their compensation, controlling shareholders, comparative corporate governance, cross-border investments in global capital markets, and the political economy of corporate governance.
Evidence from firms in 47 countries shows that companies with political connections have higher leverage and higher market shares, but they underperform compared to nonconnected companies on an accounting basis. Differences between connected and unconnected firms are more pronounced when political links are stronger. Differences also vary depending on the level of corruption and the degree of economic development in individual countries.
It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.
Agency theory recognizes that the interests of managers and shareholders may conflict and that, left on their own, managers may make major financial policy decisions, such as the choice of a capital structure, that are suboptimal from the shareholders' standpoint. The theory also suggests, however, that compensation contracts, managerial equity investment, and monitoring by the board of directors and major shareholders can reduce conflicts of interest between managers and shareholders. This research investigates the relationship between the firm's capital structure and 1) executive incentive plans, 2) managerial equity investment, and 3) monitoring by the board of directors and major shareholders. This paper finds a positive relationship between the firm's leverage ratio and 1) percentage of executives' total compensation in incentive plans, 2) percentage of equity owned by managers, 3) percentage of investment bankers on the board of directors, and 4) percentage of equity owned by large individual investors. These findings are consistent with the predictions of agency theory, suggesting, in turn, that capital structure models that ignore agency costs are incomplete.
We review accounting and finance research on corporate governance (CG). In the course of our review, we focus on a particularly vexing issue, namely endogeneity in the relationships between CG and other matters of concern to accounting and finance scholars, and suggest ways to deal with it. Given the advent of large commercial CG databases, we also stress the importance of how CG is measured and in particular, the construction of CG indices, which should be sensitive to local institutional arrangements, and the need to capture both internal and external aspects of governance. The ‘stickiness’ of CG characteristics provides an additional challenge to CG scholars. Better theory is required, for example, to explain whether various CG practices substitute for each other or are complements. While a multidisciplinary approach to developing better theory is never without its difficulties, it could enrich the current body of knowledge in CG. Despite the vastness of the existing CG literature, these issues do suggest a number of avenues for future research.
The system GMM estimator for dynamic panel data models combines moment conditions for the model in first differences with moment conditions for the model in levels. It has been shown to improve on the GMM estimator in the first differenced model in terms of bias and root mean squared error. However, we show in this paper that in the covariance stationary panel data AR(1) model the expected values of the concentration parameters in the differenced and levels equations for the cross-section at time t are the same when the variances of the individual heterogeneity and idiosyncratic errors are the same. This indicates a weak instrument problem also for the equation in levels. We show that the 2SLS biases relative to that of the OLS biases are then similar for the equations in differences and levels, as are the size distortions of the Wald tests. These results are shown to extend to the panel data GMM estimators. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2010.
This paper compares U.S. firms that issued or repurchased significant amounts of equity between 1978 and 1993 to those that issued or repurchased debt. We find that firms are most likely to increase debt and repurchase equity when they have less debt than is predicted by a cross-sectional leverage regression. In addition, the likelihood of issuing debt rises with the firms' past profitability. Our results confirm previous findings that firms are most likely to issue equity after experiencing a share price increase. In contrast to our other findings, this last result appears to be inconsistent with the hypothesis that firms make choices that move them towards a target debt ratio. The paper concludes by exploring a variety of explanations for the positive relation between share price runups and equity issuance.
This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformations in panel data models. We characterize the valid transformations for relevant models and show that optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with the effects and illustrate their importance with simulations.
Using a comprehensive sample of nearly 7,000 firms from 1990 to 2004, we examine the corporate board structure, trends, and determinants. Guided by recent theoretical work, we find that board structure across firms is consistent with the costs and benefits of the board's monitoring and advising roles. Our models explain as much as 45% of the observed variation in board structure. Further, small and large firms have dramatically different board structures. For example, board size fell in the 1990s for large firms, a trend that reversed at the time of mandated reforms, while board size was relatively flat for small and medium-sized firms.
This article surveys the seventeen papers in this special issue of the Journal of Financial Economics, and related work. The major findings are: (1) patterns of stock ownership by insiders and outsiders can influence managerial behavior, corporate performance, and stockholder voting in election contests; (2) corporate leverage, inside stock ownership by managers, and the control market are interrelated; (3) departures from one share/one vote affect firm value and efficiency; (4) takeover resistance through defensive restructurings or poison pill provisions is associated with declines in share price; and (5) top management turnover is inversely related to share price performance.
This paper analyzes the influence of ownership structure on firm value. We find a non-significant relationship between the ownership of large blockholders and firm value. We also find a positive effect of the degree of control with regard to firm value. Endogenous treatment of these variables then reveals a positive effect for the ownership by major shareholders on firm value, although the opposite relationship is not significant; and a positive effect of the degree of control on Tobin's Q and vice versa. A positive effect is seen when the major shareholders are individuals.
How is corporate governance measured? What is the relationship between corporate governance and performance? This paper sheds light on these questions while taking into account the endogeneity of the relationships among corporate governance, corporate performance, corporate capital structure, and corporate ownership structure. We make three additional contributions to the literature:First, we find that better governance as measured by the Gompers, Ishii, and Metrick [Gompers, P.A., Ishii, J.L., and Metrick, A., 2003, Corporate governance and equity prices, Quarterly Journal of Economics 118(1), 107–155.] and Bebchuk, Cohen and Ferrell [Bebchuk, L., Cohen, A., and Ferrell, A., 2004, What matters in corporate governance?, Working paper, Harvard Law School] indices, stock ownership of board members, and CEO-Chair separation is significantly positively correlated with better contemporaneous and subsequent operating performance.Second, contrary to claims in GIM and BCF, none of the governance measures are correlated with future stock market performance. In several instances inferences regarding the (stock market) performance and governance relationship do depend on whether or not one takes into account the endogenous nature of the relationship between governance and (stock market) performance.Third, given poor firm performance, the probability of disciplinary management turnover is positively correlated with stock ownership of board members, and board independence. However, better governed firms as measured by the GIM and BCF indices are less likely to experience disciplinary management turnover in spite of their poor performance.
I develop a corporate governance framework, provide a broad overview of recent corporate governance research, and place each of the Special Issue papers within the context of this framework. The papers in the issue contribute to our understanding of a wide range of governance topics including: the role of antitakeover measures, board structure, capital market governance, compensation and incentives, debt and agency costs, director and officer labor markets, fraud, lawsuits, ownership structure, and regulation. In short, the papers span almost every aspect of governance systems.
This paper shows that classified boards destroy value by entrenching management and reducing director effectiveness. First, I show that classified boards are associated with a significant reduction in firm value and that this holds even among complex firms, although such firms are often regarded as most likely to benefit from staggered board elections. I then examine how classified boards entrench management by focusing on CEO turnover, executive compensation, proxy contests, and shareholder proposals. My results indicate that classified boards significantly insulate management from market discipline, thus suggesting that the observed reduction in value is due to managerial entrenchment and diminished board accountability.
Using a unique panel dataset that tracks corporate board development from a firm's IPO through 10 years later, we find that: (i) board size and independence increase as firms grow and diversify over time; (ii) board size—but not board independence—reflects a tradeoff between the firm-specific benefits and costs of monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on that influence. These results indicate that economic considerations—in particular, the specific nature of the firm's competitive environment and managerial team—help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained, suggesting that idiosyncratic factors affect many individual boards’ characteristics.