Abstract
The purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Cambodian banks. This paper considers foreign and domestic-owned banks in Cambodia. This study opts for a balanced sample of foreign and domestic owned banks for the period 2014-2018. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model is selected using the Hausman specification test where the result shows that the random effect model using generalized least square (GLS) regression is more suitable for the analysis. The findings show that Cambodian banks are having a substantially higher percentage of NEDs on their board, high implementation of governance procedures on board committees where on average the banks are having more than the required two board committees (audit and risk committees) as required by the Prakas on the governance of banks by National Bank of Cambodia. The average board size is around 8 members of which at least 3 members are having a postgraduate degree or a professional qualification. Policymakers need to improve on their supervisory function as the majority of the domestic and some foreign banks do not disclose their annual reports on their company website as required by the Prakas on Corporate Governance of Banks operating in Cambodia. Moreover, amendments should be made to the current corporate governance code for financial institutions as there are no explanatory notes that guide companies and therefore, the current guideline is open to individual and subjective interpretation.
Highlights
Despite the central role of boards in in corporate governance,1 there is relatively little understanding of the internal organization of boards, the structure of board committees
Our descriptive analysis reveals that: (1) the use of certain commonly mentioned non-required committees—including finance, technology, strategy, ethics, and diversity—is relatively rare; (2) the number of board committees has been fairly stable over time; (3) the majority of directors sit on multiple committees
Consistent with the view that committees enable knowledge specialization, we find that committee activity increases with firm size and the proportion of outside directors; larger firms and firms with more independent boards have higher benefits from specialization, because larger firms face more complex issues than smaller firms (Linck et al, 2008; Lehn et al, 2008), and outside directors face higher costs to accumulate knowledge about the firm (Kim et al, 2014)
Summary
Despite the central role of boards in in corporate governance, there is relatively little understanding of the internal organization of boards, the structure of board committees. Committees can increase the accountability of the board to the firm by reducing individual free-riding and enabling outside directors to perform their monitoring duties more effectively through greater separation from management Despite these benefits, there is a cost associated with board committees: board committees can lead to information segregation for the directors not on a specific committee (Reeb and Upadhyay, 2010). Our previous tests make the assumption that boards have a given size and decide on what committees to have and how to allocate the directors to committees: our previous results might be biased if boards add directors in response to changes in committee structure To address this issue, we look at the implementation of the Sarbanes-Oxley Act, which produced exogenous variation in the number of committees.
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