Company characteristics and compliance with ASX corporate governance principles

Abstract

Purpose– This study aims to examine whether company characteristics determine the structure and composition of a company’s board. In particular, it investigates the three board-design choices that Australian-listed companies make in the context of Australian Stock Exchange (ASX) corporate governance principles (published in 2003) where they are allowed to depart from the recommended best-practice board structure if the departure better serves their unique board and governance requirements.Design/methodology/approach– A logistic regression is performed on a cross-section of data for 258 ASX-listed companies averaged over the years 2004 to 2007, using the company variables size, age, leverage, ownership concentration, profitability, liquidity, price-earnings ratio, market-to-book ratio and cross-listing.Findings– The study finds that size has a strong, statistically significant impact on all three principles. Ownership concentration, price-earnings ratio and age have statistically significant impacts on the likelihood of compliance with at least one principle but have no consistent influence over all. This finding supports the underlying philosophy of the ASX corporate governance principles that flexible guidelines serve companies better than inflexible rules.Originality/value– This study breaks new ground in empirically investigating the effect of company variables on compliance with the ASX’s Principles of 2003, which are new for Australia in requiring an “if not, why not” response from companies.