CEO Chairman Research Articles

Audit committee nominee directors and bank performance: Evidence from Indian banks

The audit committee (AC) in the Indian public sector banks consists of executive directors, Reserve Bank of India nominee directors, and the central government nominee directors in addition to independent directors, whereas the AC in the private sector banks consists mostly of independent directors. The difference in the constitution of the AC across different ownership may have a different impact on their performance. Hence, this study aims to investigate the impact of the nominee directors on the audit committee and the performance of the Indian listed banks. The study uses the panel data approach. We have taken 21 public sector banks and 15 private sector banks operating in the Indian banking sector. The fixed effects estimation technique to examine the relationship between the audit committee constituents and bank performance during the period 2009–2010 to 2016–2017 was used. It was found that CEO chairman duality, the presence of the chartered accountant (CA) director, AC chairman, and AC bear a positive relationship with bank performance. The findings are more or less consistent across the various bank performance measures and sub-samples classified based on the bank size, audit committee size, and ownership of the banks. The study explores the relationship between nominee directors and bank performance. The study provides insights to policy regulators and policymakers who are entrusted with the establishment of ACs in the banks in light of ongoing regulatory reforms.

Do terrorist attacks matter to dividend policy?

AbstractResearch Question/IssueMotivated by the importance of dividend policy in corporate finance as well as the rising frequency and severity of terrorism in society, this study aims to investigate whether and how dividend policy is influenced by terrorist attacks.Research Findings/InsightsUsing a comprehensive sample of terrorist attacks occurring in the United States between 1994 and 2015, we find that relative to firms located in safety areas (nonimpact firms), firms headquartered in terrorism‐affected areas (impact firms) are more likely to pay dividends and pay higher amount of cash dividends. We further find that the effect of terrorist attacks on dividends is driven by agency costs of free cash flow.Theoretical/Academic ImplicationsWe contribute to the literature by shedding light on how terrorism affects firms' dividend preferences. We highlight that uncertainty caused by terrorism heightens the need for dividend payouts in the presence of free cash flow. Our paper also adds to the existing literature by showing that better corporate governance quality as defined by a more independent board featuring CEO–chairman separation and greater presence of independent directors coupled with larger institutional ownership has a crucial role in mitigating the impact of terrorism on corporate payout policy.Practitioner/Policy ImplicationsPublic firms should regard dividend policy as a governance tool that reduces agency costs during times of uncertainty. The results of this study strengthen the idea that institutional investors can play a key role in corporate governance. As such, for investors, as far as agency costs are concerned, investments in firms that have a higher proportion of institutional holdings are sensible.

KURUMSAL YÖNETİM VE FİRMA PERFORMANSI: BORSA İSTANBUL’DA BİR ARAŞTIRMA

The effect of corporate governance on business output is unevitable. It is possible to maximize coordination and performance by evaluating the connection between corporate governance and business output correctly. In corporate governance, fairness, reliability, accountability, objectivity and transparency are required to stand out. The primary purpose of this work is to reveal the connection between corporate governance and business output. This is to enable to make a healthier assessment by revealing the positive and negative aspects of the relationship and to provide solutions to the problems that may arise when necessary.
 It examines corporate governance variables and analyses if they affect on firm performance as measured by return on presence (ROA) and return on equity (ROE). According to the review of literature, we select four corporate governance variables. These are; board members, CEO and chairman, board structure and ownership concentration which assisted as the independent variables and the dependent variable is firm performance. The linear multiple regression was used to assess the connection between corporate governance and firm performance. 
 In this article data for 179 manufacturing firms from ISE are collected from 2018 in order to determine how is the relation between corparate governance and business performance. As a result of the analyzes, it is reach that there is positive and meaningful relation between board members, board structure, ownership concentration and firm performance. But findings from the study show that there is no meaningful relationship between CEO chairman and firm performance.

CEO chairman controversy: evidence from the post financial crisis period

Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent decision-making and effective risk oversight. This study examines the issue of CEO Duality, identifying a positive relation to greater risk-taking across a battery of sensitivity tests. In further analysis, the study controls for differences in supervisory monitoring levels to examine its impact. Banks led by CEO Chairmen which are subject to lower levels of supervision continue to report a robust association to risk-taking, as before. However, this association dissipates for banks which are subject to heightened supervisory monitoring. These findings indicate that agency costs related to Duality may be moderated by greater regulation. This paper weighs-in on the controversy relating to a single contentious governance structure (i.e., CEO Duality), thus informing boards, regulators and researchers of the need to consider the overall interplay of monitoring mechanisms.

Tone of earnings announcements in sin industries

PurposeThe purpose of this paper is to investigate the empirical association between the tone of earnings announcements and a company’s membership in a sin industry.Design/methodology/approachThis study constructs a model of the determinants of earnings announcement tone to examine the impact of sin industry membership on earnings announcement tone. An interaction term between CEO power (CEO–chairman duality) and sin industry membership is used to test whether CEO power moderates the strength of the association. The earnings announcements tone is measured using the spread in the proportion of positive and negative words. The category of sin industry includes not only industries such as tobacco, gambling and alcohol, but also industries associated with emerging environmental, social, and ethical issues (i.e. firearms, oil and cement).FindingsThe analysis of a sample of US firms from the 1994 to 2013 period shows that the tone of earnings announcement is less optimistic for companies in sin industries, but this association is weaker for companies that are led by powerful CEOs. The results remain robust to alternative definitions of sin industry membership and CEO power (CEO tenure) and to alternative model specifications.Originality/valueThe findings suggest that although sin companies cannot change the nature of their business, the management of such companies, in general, uses a less aggressive tone in their earnings announcements. These results further investors’ understanding of sin companies’ reporting behavior.

The board of directors and firm performance: empirical evidence from listed companies

PurposeThis study aims to reconcile some of the conflicting results in prior studies of the board structure–firm performance relationship and to evaluate the effectiveness and applicability of agency theory in the specific context of Italian corporate governance practice.Design/methodology/approachThis research applies a dynamic generalised method of moments on a sample of Italian listed companies over the period 2003-2015. Proxies for corporate governance mechanisms are the board size, the level of board independence, ownership structure, shareholder agreements and CEO–chairman leadership.FindingsWhile directors elected by minority shareholders are not able to impact performance, independent directors do have a non-linear effect on performance. Board size has a positive effect on firm performance for lower levels of board size. Ownership structure per se and shareholder agreements do not affect firm performance.Research limitations/implicationsThis paper contributes to the literature on agency theory by reconciling some of the conflicting results inherent in the board structure–performance relationship. Firm performance is not necessarily improved by having a high number of independent directors on the board. Ownership structure and composition do not affect firm performance; therefore, greater monitoring provided by concentrated ownership does not necessarily lead to stronger firm performance.Practical implicationsThis paper suggests that Italian corporate governance law should improve the rules and effectiveness of minority directors by analysing whether they are able to impede the main shareholders to expropriate private benefits on the expenses of the minority. The legislator should not impose any restrictive regulations with regard to CEO duality, as the influence of CEO duality on performance may vary with respect to the unique characteristics of each company.Originality/valueThe results enrich the understanding of the applicability of agency theory in listed companies, especially in Italy. Additionally, this paper provides a comprehensive synthesis of research evidence of agency theory studies.

An empirical analysis of audit pricing and auditor selection: evidence from India

PurposeThis paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy.Design/methodology/approachThe sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics.FindingsThis paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors.Originality/valueThis paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

CEO Duality and Firm Performance: Does Economic Policy Uncertainty Mediate the Relation?

AbstractExploiting two exogenous shocks, we examine the relation between CEO–Chairman duality and firm performance. We report evidence that CEO duality benefits a firm when economic policy uncertainty is high. This implies that CEO–‐Chairman duality is an advantageous governance mechanism for coping with economic policy uncertainty. We show that the Sarbanes‐Oxley Act reduced firm performance if a firm had separate leadership in 2001. However, this negative effect was mitigated if a firm had combined leadership in 2001. The results suggest that CEO duality is complementary to board independence and that the value of CEO duality is contingent on a firm’s environment.

Dual-Class Firms: Evidence from IPOs of Chinese Firms Cross-Listed on US Exchanges

ABSTRACTWe compare Chinese single with dual-class firms cross-listed on US exchanges. We find that dual-class firms are larger in terms of assets and sales, possess ownership concentration, and have higher institutional ownership. Chinese firms in IT industry are especially likely to use dual-class structure. We find that, contrary to the literature, dual-class firms underprice 30.42% more and firm underprices less when governance practices are adequate. Insiders need to bear underpricing cost for retaining control. Interestingly, we find that dual-class firms hire more independent directors to show commitment toward shareholder’s rights but control them through CEO Chairman Duality and superior voting rights.

Does a “Ceo Chairman” Guarantee Better Performance from a Firm?

Abstract This paper provides a brief review of the state of knowledge in the field of agency theory. The managerial power approach assumes that a chief executive officer is able to affect the scale of his or her pay. However, Kaplan (2012) and others see a different picture of the corporate-governance landscape, hence they provide certain market-based explanations for high compensation. Our paper examines the relationship between a firm’s performance and the amount of managerial compensation, and the ability of a CEO to affect a board’s decision regarding his or her total compensation. The dataset consists of 75 companies traded in the capital market in the US. Our panel dataset covers a 10-year period from 2004 to 2013. We developed a single equation panel data model. The resulting parameter values provide a different picture of CEO power and the interconnection between a firm’s performance and CEO pay in both sectors.

Corporate governance mechanisms and audit delay in a joint audit regulation

Purpose This paper aims to examine the influence of corporate governance mechanisms on audit delay in companies listed on the Kuwait Stock Exchange (KSE) in 2013. Kuwait has the unusual audit regulation that listed companies must be jointly audited by two independent auditors who both sign the report. Design/methodology/approach Audit delay is measured as the number of days that elapse between the end of the company’s financial year and the date of the audit report. A multivariate regression model analyzes the association between audit delay and six corporate governance mechanisms, namely, joint auditor combination, board size, board independence, role duality, institutional ownership and government ownership. Findings There is a wide range in audit delay among KSE companies, ranging from 7 to 159 days. After controlling for various company characteristics, there is a significant difference in the timeliness of audit reports depending on the combination of auditors: audit delay is significantly reduced when the audit is performed by Big-4 companies. Moreover, companies with larger boards, a greater number of independent directors and separate CEO–chairman roles are more likely to produce timely financial statements. Higher government ownership levels were associated with greater audit delay, while no significant association was found for institutional ownership. These results are robust to a variety of sensitivity checks. Practical implications The findings highlight the effectiveness of corporate governance mechanisms in shaping the timeliness of audit reports; thus, these mechanisms should be taken into account in any regulatory action to reduce audit delay. In addition, the findings of this study provide empirical evidence that can be used by regulators and enforcement bodies in their continued campaigns promoting the role and importance of corporate governance mechanisms in improving the quality and timeliness of financial reporting. Originality/value The study extends the audit delay literature by investigating the issue in a joint audit setting. The empirical evidence shows a wide range of audit delay in KSE-listed companies, which raises questions about the costs and benefits of the joint audit regulation for the length of this period.

The Effect of Board Director’s Characteristics on Real Earnings Management: Tunisian-Listed Firms

The present research is focused on studying the effect of board director’s characteristics on the real earnings management (management sales manipulation proxy) measured by the abnormal level of operating cash flows. Our empirical study has been conducted on a sample of 29 Tunisian-listed companies over the period ranging from 2009 to 2013. The study finds a negative impact of board size, board independence, and board meetings on the sales manipulation. Concerning the CEO chairman duality, the results show no association with the level of sales management. This leads us to conclude that the board of directors seems to have a significant effect on delimiting the sales management practice.

CORPORATE GOVERNANCE AND CAPITAL STRUCTURE DYNAMICS: AN EMPIRICAL STUDY

AbstractConsistent with theoretical predictions, we find that both a higher level of financial leverage and a faster speed of adjustment of leverage toward the shareholders' desired level are associated with better corporate governance quality as defined by a more independent board featuring CEO–chairman separation and greater presence of outside directors, coupled with larger institutional shareholding. In contrast, managerial incentive compensation on average discourages use of debt or adjustments toward the shareholders' desired level, consistent with its entrenchment effect. The effect of corporate governance on leverage adjustments is most pronounced when initial leverage is between the manager's desired level and the shareholders' desired level where the interests of managers and shareholders conflict.

The Impact of Corporate Governance and Earnings Management on Stock Market Liquidity in a Highly Concentrated Ownership Capital Market

We provide insights to the effects of corporate governance mechanisms and earnings management on market liquidity (measured by bid–ask spreads [B_As] and trading volume) in a setting characterized by highly concentrated noninstitutional ownership. First, we document that high noninstitutional ownership increases B_As and depresses trading volumes. Next, we show that volume of trade tends to be higher and B_A tends to be lower for firms with better corporate governance mechanisms (e.g., board independence and CEO–chairman separation) when there is high concentration of noninstitutional ownership. In contrast to prior findings, when controlling for corporate governance quality, B_As are unaffected by earnings management, while trading volume increases when earnings management is higher, presumably due to an increase in investor disagreement. Our results are robust to changes in the market trading system across the sample period.

Governance and Scope Economies in Microfinance Institutions

This paper studies the relation between board size and composition and cost savings (scope economies) from combining savings mobilization and lending by Microfinance Institutions. The findings support the hypothesis that employee representation on the board is associated with positive scope economies, possibly due to internal knowledge. However, CEO Chairman duality is associated with equal or larger probability of scope diseconomies, which is consistent with previous findings. Representation of other stakeholders on the MFI board does not affect scope economies. The results seem to support the notion that, in highly uncertain environments, group cohesion may be an advantageous mechanism of control.

Corporate governance and accounting enforcement actions in Italy

PurposeThe purpose of this study is to examine whether there is a relation between corporate governance and the publication of corporate accounts that fail to comply with legal and regulatory provisions governing their preparation.Design/methodology/approachThe paper analyses all the Italian listed companies that from 2002 to 2010 were subject to accounting enforcement actions. From the literature review, 11 hypotheses were developed in relation to six issues: CEO Chairman duality, board size, board independence, the presence of an audit committee and its composition, the presence of nomination and remuneration committees and, finally, the presence of a big audit firm. Using non parametric tests, the paper compares the governance characteristics of fraudulent firms with those of a control sample of comparable firms.FindingsIt is found that board independence is the sole effective mechanism in detecting financial reporting fraud. The results show that firms committing accounting fraud have a lower percentage of independent directors on the board and fewer non‐executive and independent directors on the audit committee than the matched control sample.Research limitations/implicationsThe main limit of this research is the small number of companies observed, even if this limit reflects the size of the Italian Stock Exchange. Another caveat is the endogeneity problem that impacts much of the board literature.Originality/valueThis paper extends the accounting literature related to financial reporting fraud since it analyses the issue for the first time with reference to Italy, one of the most relevant European Union countries.