Firm Board Research Articles

Creditors' governance, information asymmetry and debt diversification: evidence from India

PurposeThe governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders. This should increase the confidence of other creditors in firm activities, thus performing the certification role. Therefore, the purpose of this paper is to empirically examine the certification role of BADs.Design/methodology/approachThe authors test their hypotheses by using a panel of Indian non-financial firms. Our approach involves examining whether there is a significant difference in the number of different debt sources, the dispersion of debt among different debt sources, and leverage for BAD and Non_BAD Firms. The authors use univariate analysis and multivariate regression models to test the difference.FindingsThe authors find that firms with BADs on their board have (1) access to a higher number of different debt sources, (2) debt distributed evenly among different sources and (3) a higher debt ratio. Overall, our study provides supporting evidence for the certification role that BADs play on the boards of non-financial firms.Originality/valueThe authors contribute to the literature in two aspects. First, to the best of our knowledge, this is the only study that examines the effect of the governing role of banks on the lending decisions of non-bank lenders. Second, our study is associated with the growing body of the governance literature in the emerging markets context by examining the interaction of financial policies and governance in an institutional framework, which is very different from that of the developed world.

Last to Come and Last to Go? The Complex Role of Gender and Ethnicity in the Reputational Penalties for Directors Linked to Corporate Fraud

Scholars have found consistent evidence that directors who served on boards of firms accused of misconduct face reputational penalties in the director labor market. While commonly interpreted in te...

Corporate environmental disclosure in the integrated reporting regime: The case of listed mining companies in South Africa

Orientation: The emergence and adoption of integrated reporting (IR) opens up a new agenda for improving the level of environmental disclosures, especially for listed companies. This study explores the environmental information disclosed by mining firms that are listed on the Johannesburg Stock Exchange (JSE) and in essence expects that the level of corporate environmental disclosure (CED) will improve compared to the periods prior to the mandatory requirement of IR. Research purpose: This article examines the extent to which IR has influenced the level of CED among mining firms listed on the JSE. In addition, it determines variation in the level of CED on account of corporate governance attributes and firm-based characteristics. Motivation for the study: The natural capital is an integral fundamental concept upon which the other five capitals depend. The negative impacts of mining activities on the environment necessitate that mining firms demonstrate higher levels of commitment in this regard. Research approach/design and method: This study utilises data for the top 100 mining firms in the JSE between 2015 and 2018. This study obtained data on environmental and other variables through content analysis of the annual integrated and sustainability reports of sampled mining firms. Data analysis involves descriptive statistics and a one-way analysis of variance (ANOVA), with the aid of the Statistical Package for Social Sciences version 21. Main findings: We found no improvement in the level of CED under the IR approach compared to earlier periods. Further, the study found that firm size and board size are associated with the level of CED. Practical/managerial implications: If greater disclosure of information is preferable to less, policy-makers and regulators should give particular attention to environmental issues by extending the minimum regulatory requirements concerning the concept of the natural capital. Contribution/value-add: This study is one of the first few studies that bring to fore the relevance of IR to CED in the South African mining sector.

The Effect of Auditor Industry Specialization and Board Independence on the Cash Flow Reporting Classification Choices under IFRS

This study explores the relationship between audit partner and firm industry specialization and board of director independence on the one hand and the decision by Taiwanese firms to take advantage of IFRS flexibility concerning reporting interest income and expense, and dividends received in the operating cash flow section of the statement of cash flows on the other. A sample of 1,227 Taiwanese firms were drawn for fiscal year 2013, the year that Taiwan switched from using its GAAP to using IFRS principles. Of these, 354 changed their cash flow reporting classifications. We examine the interaction effect of board independence and auditor industry specialization at both partner-level and firm-level on the cash flow reporting classification choices under IFRS. The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specialization have a complementary relationship with board independence in not changing a firm’s interest expense paid reported in operating activities to financing activities.

Do Independent Directors Improve Firm Performance? Evidence from India

With increase in the number of corporate frauds, shareholders, analysts and the general public look forward to IndDirs as the saviours who can help prevent such corporate misdoings. This study attempts to find out if having more IndDirs in the board influences firm profitability. Using panel data consisting of all listed Indian companies in the sample period of 2003–2019, it finds that proportion of IndDirs is negatively related to firm profitability. Control variables—board size, firm size (firmSize), leverage, type of industry (IndType), firm age, ownership, and year 2014—are included in the analysis. Even after arresting their confounding effects on firm performance, negative impact of proportion of IndDirs on firm performance continues. Plausible reasons for this negative relationship are offered. This study has relevance in the wake of mandatory provisions in the Companies Act, 2013 , for presence of IndDirs in the board of Indian firms.

Paid for looks when others are looking: CEO facial traits, compensation, and corporate visibility

Using both archival data and survey data in which participants rated the facial traits of S&P 500 CEOs, we find that CEOs perceived as more competent or attractive receive a higher salary but not higher non-salary pay, particularly for firms with higher corporate visibility (conceptualized as investor visibility, customer visibility, and media visibility). However, findings also show that the favorable perceptions of CEO facial traits do not predict firm performance. Further testing shows that externally (internally) hired CEOs are paid a salary premium for looking competent (attractive), suggesting that the salary-facial traits relation may depend on how much information is readily available about the CEO candidate’s ability when s/he is hired. Supplemental analyses provide evidence that the CEO salary-facial traits relation varies depending on CEO characteristics and firm board characteristics. Implications for the CEO labor market are discussed.

Who Runs the Firm? A Long-Term Analysis of Gender Inequality on Swiss Corporate Boards

The recent arrival of women on corporate boards has been extensively discussed in the literature. However, most of the studies focus on very recent times. This article analyzes the presence of women on the corporate boards of the largest firms in Switzerland across the past hundred years. It shows that until the beginning of the 1970s, the very few women sitting on the boardrooms belonged to the families owning the firms. Two main factors contributed then to the progressive opening of the corporate elites to women. First, the extending in 1971 of “universal suffrage” to women led to a feminization of the political elites, and women with a political profile entered the boardrooms of firms in the distribution and retailing sector. Second, the increasing globalization of the economy at the end of the twentieth century contributed to weaken the cohesion of the very male and Swiss corporate elite. At the beginning of the twenty-first century, however, the presence of women remained low in international comparison, and they were still hitting the “glass ceiling” regarding the top positions in the firm.

Board of directors and export spillovers: What is the impact on extensive margins of trade?

AbstractIncreased export experience on the board of nonexporting firms has a causal effect on their propensity to enter foreign markets in later periods. Using a universal set of Swedish employer–employee panel data for the period 2000–14, this paper finds evidence on spillover from exporters to non‐exporting SMEs through outside board directors. The identification strategy to account for endogenous selection of external board members relies on external instruments and applications of different instrumental variable approaches, capturing also unobserved heterogeneity. Our findings are robust to controlling for export background among managers and employees, as well as firm size, human capital, total factor productivity, productivity spillovers, firm location and industry classification.

Effects of board characteristics on post-acquisition performance: A study of cross-border acquisitions by firms in the manufacturing sector

Our study examines how acquiring firm board characteristics influence the performance of cross-border merger and acquisitions (CBMAs). It is based on a sample of 250 large transactions in the manufacturing sector undertaken by U.S. firms in 33 countries between 1991 and 2006. Our findings reveal that acquiring firms having a larger board and outside directors with greater influence exhibit superior post-acquisition shareholder value creation in CBMAs. In addition, our results indicate that acquiring firms with more dominant CEOs perform better in such acquisitions. From the standpoint of firms engaged in CBMAs, our findings suggest that they stand to benefit from having a larger board and influential outside directors who can diligently monitor and advise top management in undertaking CBMAs. Finally, acquiring firms need to recognize that the complexities and challenges generally associated with CBMAs may require dominant CEOs who can provide clear and unambiguous leadership during the pre- and post- acquisition process.

English

Stakeholders’ conscious follow-up on companies’ operation pressured business organizations to be responsible for the society and environment. Companies social and environmental reporting is essential to ease this pressure. Despite its importance, there is no clear consensus on the motivation of companies for their reporting. Therefore, the aim of this study was to examine the motivational factors influencing social and environmental reporting from large tax payers in Ethiopia. An explanatory research design through quantitative research approach was employed by using both primary and secondary data source which was collected from 262 sampled firms in 2018. The regression result revealed that firm age, size, profitability, board size and industry sensitivity had a positive and significant influence on social and environmental reporting, whereas, leverage had a negative and significant impact on social and environmental reporting. This result implied that beyond the voluntary nature of Ethiopian companies’ social and environmental reporting, they have been using their reporting to legitimize their position in the society. Key words: Agency theory, legitimacy theory, social and environmental reporting, stakeholder theory.

Influence Capital in Boards: a study of ex-bureaucrats in India

One of the important roles which firm boards play is the resource provision role. In this study, we examine influence capital, a specific form of resource provision on boards. Two categories of government officials, i.e., Politicians and Bureaucrats tend to be the major providers of influence capital. While firm connections to politicians as board members has been examined in prior literature, connections to bureaucrats (and ex-bureaucrats) has not received the same level of attention. This is despite a sharp increase in the appointment of bureaucrats in company boards in the last few years. We analyze and provide evidence that industry regulation and foreign corporate ownership are major organizational determinants of selection of bureaucrats as board members. Further, it was also imperative to understand the differences in selection of various categories of bureaucrats as board members. We examined and find that generalist bureaucrats are more sought after by firms than specialist bureaucrats, usually as independent directors. Overall, this study provides an important initial thrust for studying bureaucrat board members as providers of influence capital.

All on board? New evidence on board gender diversity from a large panel of European firms

Using a unique database of over 20 million firms over two decades, we examine industry sector and national institution drivers of the prevalence of women directors on supervisory and management boards in both public and private firms across 41 advanced and emerging European economies. We demonstrate that gender board diversity has generally increased, yet women remain rare in both boards of firms in Europe: approximately 70% have no women directors on their supervisory boards, and 60% have no women directors on management boards. We leverage institutional and resource dependency theoretical frameworks to demonstrate that few systematic factors are associated with greater gender diversity for both supervisory and management boards among both private and public firms: the same factor may exhibit a positive correlation to a management board, and a negative correlation to a supervisory board, or vice versa. We interpret these findings as evidence that country-level gender equality and cultural institutions exhibit differentiated correlations with the presence of women directors in management and supervisory boards. We also find little evidence that sector-level competition and innovativeness are systematically associated with the presence of women on either board in either group of firms.

All on Board? New Evidence on Board Gender Diversity from a Large Panel of Firms

Using a unique database of over 20 million firms over two decades, we examine the industry sector and national institution drivers of the prevalence of women directors on supervisory and management boards in both public and private firms across 41 advanced and emerging European economies. We demonstrate that gender board diversity has generally increased, yet women remain rare in both boards of firms in Europe: approximately 70% have no women directors on their supervisory boards, and 60% have no women directors on management boards. We leverage institutional and resource dependency theoretical frameworks to demonstrate that few systematic factors are associated with greater gender diversity for both supervisory and management boards among both private and public firms: the same factor may exhibit a positive correlation to a management board, and a negative correlation to a supervisory board, or vice versa. We interpret these findings as evidence that country-level gender equality and cultural institutions exhibit differentiated correlations with the presence of women directors in management and supervisory boards. We also find little evidence that sector-level competition and innovativeness are systematically associated with the presence of women on either board in either group of firms.

Repaying the State’s 'Helping Hand': The Costs of Political Connections in China

This study examines the heretofore-unexplored costs of political connections in the context of China’s corporate restructuring. Leveraging original surveys of the same Chinese firms over an eleven-year period and the variations in their post-restructuring board composition, we find that restructured state-owned enterprises (SOEs) with political connections, measured as current or former government officials on the firm board, receive more preferential access to key inputs and policy opportunities controlled by the state, but they also pay more tax, independent of profits. We argue this is repayment by politically connected firms for the state’s “helping hand.” Our findings suggest that state-firm relations be recast as a reciprocal exchange rather than a one-sided provision of benefits from the state to its politically connected firms. Shifting the focus from profits to taxes also offers an explanation as to why China continues to favour SOEs over the private sector even when they are less profitable.

Gender Diversity: From Wall Street to Main Street

Examining the effect of hedge fund activism on gender diversity, we find that the number of female directors decreases after a firm is targeted by hedge fund activism. Using the employment history data from BoardEx, we find that activist hedge funds are more likely to appoint people with finance backgrounds to the boards of target firms. And the newly appointed finance-background directors are almost all male because of the lack of diversity in the finance industry. The lack of gender diversity of the hedge funds' networks also helps explain the impact of hedge fund activism on gender diversity on the board.

Networks of directors on Russian boards: The hidden part of the corporate governance iceberg

In this paper we apply social network analysis to study the boards of directors of 107 large listed Russian firms between 2009 and 2014. Traditional corporate governance metrics, such as demographic characteristics, experience or multiple directorships, confirm a previously established positive trend towards greater independence and better qualification of the boards of Russian firms. We also find a decrease in the centrality of directors, which corroborates the diminishing concentration of power of some directors. The most connected firms have a specific profile since they are larger, have lower market valuations, and stronger ties with government (both due to higher proportions of government owned shares and a greater number of directors who are former politicians). Our findings also demonstrate that the boards of financialinstitutions are less connected, whereas political and independent directors are more centralized.

An investigation into the effect of audit firm size, auditor tenure, institutional ownership, board characteristics on auditor independence

The independence of an auditor is a crucial issue because of its potential impact on audit quality. This study examines the effect of audit firm size, auditor tenure, institutional ownership, board independence, and board diversity on the audit quality. The sample comprised 52 listed service firms on the Jordanian Stock Exchange, whose data were obtained for the years from 2013 to 2016, and 208 firm-year observations were involved in the analyses process. In this study, auditor independence served as the proxy for audit quality. The results reveal that audit firm size and institutional owners and board independence significantly and positively influence audit quality. The results reveal that companies with a higher proportion of institutional ownership and independent members of the board and being audited by a Big 4 firm are more likely to maintain the independence of the external auditor. However, auditor tenure and board diversity had no significant relationship with auditor independence. The results could be useful for the management of companies that are interested in enhancing the quality of audit work in their companies.

Insider Ownership and Investment Efficiency

Agency problems in firms are known to influence suboptimal capital investment decisions. Using panel data of publicly listed firms in India, we find evidence that increased insider ownership is associated with lower investment efficiency, i.e. as insider ownership increases, firms show tendency to make capital investments beyond the optimal level. However, we do not find evidence of increased insider ownership leading to underinvestment (below the optimal level of capital investment). A plausible explanation, consistent with theory, is that such insiders are making capital investments for private gain and empire-building rather than in the best interest of the firm. Additional analyses show that the presence of independent directors on the board of firms mitigates such value-destroying investments stemming from increased insider ownership.

Social Capital and Board Advising: Evidence from the Structure of Board Committees

We investigate how social capital, captured by the strength of cooperative norms and social networks within a geographical community, affects the internal organization of boards. We find that firms headquartered in high-social-capital communities have a more advisory-focused internal board structure as they are more likely to set up specialized advisory committees and appoint more advisory directors. These findings are robust to instrumental variable analysis, propensity score matching, difference-in-differences analysis, alternative measures, and time-invariant firm characteristics. Additionally, the positive influence of social capital on board advisory focus is more palpable for firms with greater advisory needs and lower monitoring needs. Overall, our results are consistent with the interpretation that social capital serves as a societal monitoring mechanism to reduce board monitoring needs and, thus, boards of firms located in high-social-capital communities focus more on the advising function.

Board Dynamics Over the Startup Life Cycle

Venture capital (VC) backed firms face neither the governance requirements nor a major separation of ownership and control of their public peers. These differences suggest that independent directors could play a unique role on private firm boards. This paper explores the dynamics of VC-backed startup boards using new data on board member entry, exit, and individual director characteristics. We document several new facts about board size, the allocation of control, and composition dynamics. At formation, a typical board has four members and is entrepreneur-controlled. Independent directors are found on the median board after the second financing event, when control over the board becomes shared, with independent directors holding the tie-breaking vote. These patterns are consistent with independent directors playing both a mediating and advising role over the startup lifecycle, and thus representing another potential source of value-add to entrepreneurial firm performance. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.