Appointment Of Directors Research Articles

Board Diversity and Shareholder Voting

The lack of board diversity across gender and race has been one of the most controversial topics in corporate board governance in recent years. Given the central role that shareholders have in approving director appointments, we investigate whether shareholders value diversity on corporate boards by analyzing their voting patterns in director elections. Despite many shareholders’ public commitments of supporting board diversity, we show that shareholders have not historically been proactive in using their votes to motivate companies to increase diversity among corporate boards. This finding persists over time and across key shareholders who have been some of the most outspoken proponents of board diversity.

Assessing the Quality of Bank Boards: Evidence from the Indian Banking Industry

The article employs hand-collected data on 14 board characteristics for the period from 2004–2005 to 2016–2017 to empirically assess the evolution of board governance practices in the Indian banking industry. For this, we construct a comprehensive index for board governance and four sub-indices of board effectiveness. The study sheds light on how various characteristics of Indian bank boards have evolved over time. The mean value of the board index rose 33 per cent during the period of analysis, indicating a significant improvement in board governance practices of banks. The improvement in practices is primarily due to a considerable transition in the sub-dimensions of board structures and board independence. The transition in board structure results from the larger number of banks appointing different persons as CEOs and chairpersons; the change in board independence has principally emanated from the larger number of banks providing training to their independent directors, declarations and conducting separate meetings. Yet, our findings recommend room for further improvement in various aspects of board governance, including appointment of non-executive chairpersons, female directors and board independence. JEL Classification: G21, G34, C23

The Diversity of Board of Directors Characteristics and Firm Value

The research contributes to provide insights on how characteristics of board of directors can affect firm value by analyzing board characteristics such as gender diversity, age and educational background to firm value of public firms in Indonesia. Generational diversity is being considered as an independent variable as it has never been assessed in Indonesia. Resource dependence theory and upper echelons theory are used in this research among other available concepts to explain the impact of board characteristics during the decision-making process and its access to resources. ROA is used in this research as the profitability approach indicator of firm value, while Tobin’s Q is used as the market approach indicator of firm value. Samples used in this research amounts to 1.151 samples from 411 companies. The results show that educational background and board age significantly affects firm value positively when measured by profitability approach indicator. While gender diversity and generational diversity both have no significant effect on firm value when measured by either profitability approach indicator or market approach indicator due to homogeneity. The results indicate that the appointment of directors with older age while possessing higher education can increase a company’s firm value which is measured by profitability indicators.

Cultural environments and the appointment of female directors on boards: An analysis from a global perspective

AbstractHofstede's six cultural dimensions (power distance, individualism, masculinity, uncertainty avoidance, long‐term orientation and indulgence) has received little attention concerning the presence of female directors on boards. Moreover, past research has only focussed on four or five of these six cultural dimensions. Thus, this research aimed to analyse how gender diversity on boards is affected by all of the Hofstede cultural dimensions in a sample of firms operating in different countries. The data for this research were collected from Thomson Reuters database. The article draws on institutional theory, which suggests that firms are influenced by cultural aspects, as they are not separated from their environment but interact with their environment through relationships with stakeholders. The findings show that cultural dimensions, such as power distance, individualism and indulgence, have a positive effect on the proportion of female directors on boards. In contrast, the dimensions of masculinity and long‐term orientation affect the proportion negatively, and uncertainty avoidance does not seem to have an influence.

Do board characteristics affect the financial soundness of Islamic banks

AbstractThis paper was conducted to analyze the impact of the Board of Directors’ characteristics on the financial soundness of Islamic banking, using panel data regression. Composed of 67 Islamic banks over 2015-2018 period. The level of Islamic bank soundness is individually employing the Z-score measure Overall, the results of this study indicate that the soundness of Islamic banks is not adversely affected by the appointment of the independent non-executive director and the institutional director. However, the foreign director and the femal director have a positive impact on the financial soundness of banks. While, the Board of Directors’ size does not have any significant effect on the financial soundness of Islamic banks. With this study, we hope to provide new insights to the literature review andidentify the relationship between the Board of Directors and the financial soundness of Islamic banking. It has been recommended to increase the level of female presence and the foreignon the Board of Directors of Islamic banks. KeywordsBoard of Directors, Corporate Governance, Financial soundness, Gender diversity, Islamic Banking, Shariah compliance.

Busy directors and firm performance: Evidence from Australian mergers

We examine the impact of busy directors on firm performance in Australia. We do so by exploiting the exogenous reduction in board appointments generated by mergers that terminate target boards, replicating Hauser (2018)’s U.S. study. When using the entire sample of Australian publicly listed firms, we do not find significant changes in firm performance for firms that experience a reduction in board appointments. However, when partitioning the sample by firm size, we find increases in return on assets and Tobin's q for large Australian firms where their directors lose seats on acquired boards. The results show director appointments influence the performance of large Australian firms via a workload channel, in a similar way to S&P1500 U.S. firms. However, there is a need to consider the negative effects of board connections lost for the smaller Australian listed firms.

Corona Crisis related Opinion] Analysis of Trends in Annual Shareholders’ Meeting under the Corona Crisis and Issues regarding Determination on Dividends in Japanese Companies

Looking at the trends of annual shareholders meetings held in Japan in 2020, it can be said that many companies have been slow to close their accounts due to the ongoing pandemic and the associated difficulties in responding to shareholders meetings. According to Article 124 of the Japanese Companies Act (JCA), if the record date for exercising shareholders’ rights is specified in the articles of incorporation (AOI), such rights must be exercised within three months from said date. Many Japanese companies set the record date at the end of March and hold an annual shareholders meeting by the end of June. However, if the date of the annual shareholders meeting is delayed, it is, in principle, necessary to shift the record date as well. Under the current JCA it is also possible to hold, as originally scheduled, a shareholders meeting to propose a resolution regarding dividends and then to report financial statements at a later date. However, in situations where audited financial statements do not exist, there is some opposition to the resolution on dividends and to the appointment and dismissal of directors at shareholders' meetings because the information that is the premise for such a resolution is insufficient. Therefore, companies that decide about dividends at shareholders’ meetings are likely to face a difficult decision. Actually many listed companies in Japan postponed the annual shareholders' meeting in 2020. While in Japan, it is generally believed that the dividends are to be determined at shareholders meetings, we should remember that many Japanese listed companies have been able to determine dividends by a resolution of the BOD based on the provisions of the AOI even before the recent coronavirus crisis. In the United States, it is common for the BOD to determine dividends. In the United Kingdom, dividend determination can be carried out by either the shareholders or the BOD, depending on the provisions in the AOI. Even in Germany, whose laws provide the authority to determine dividends to shareholders’ meetings, the BOD (including the supervisory board) assume authority to reserve up to half of the annual surplus as a voluntary reserve fund. As a matter of fact, currently, about 60% of Japanese listed companies can still determine dividends by a resolution of the BOD based on the provisions of AOI, and the number of such companies continues to grow. In this context, future issues regarding companies’ dividend distribution should be discussed.

The influence of corporate governance structure on sustainability reporting in Malaysia

Purpose Following the introduction of the revised Malaysian Code on Corporate Governance in 2012 (MCCG 2012), this study aims to investigate the influence of corporate governance structure on the quality of sustainability reporting from the perspectives of agency theory and resource dependence theory. Design/methodology/approach Based on an analysis of 126 firms’ annual reports for the year ended 2010 and 2014, this study analyses sustainability reporting quality before the introduction of MCCG, 2012 (year ended 2010) and after (year ended 2014). Findings The findings of the study show that there was a significant increase in the quality of sustainability reporting from 2010 to 2014. Results from multiple regression analyses indicate that the number of sustainability-related training attended by the board of directors and the percentage of directors with sustainability-related experience have a significant impact on the quality of sustainability reporting. Practical implications Observations from the study provide useful insights into the importance of the appointment of directors with sustainability-related experience as part of the criteria for directors’ appointment. Moreover, the board of directors is encouraged to attend sustainability-related training to help firms improve sustainability practices and reporting. Social implications The increase in the quality of sustainability reporting indicates that companies are committed in ensuring that environmental degradation is put at the minimum level if not eliminated. It appears that companies are embracing the concept of sustainability reporting, and hence, contributing to improving and enhancing social well-being. Originality/value This study contributes to the discussion of both internal mechanisms (board independence and board capital) and external mechanisms (compliance to the code on corporate governance) of corporate governance structure on the quality of sustainability reporting. The findings can be used to identify necessary mechanisms that should be enhanced to strengthen the practice of sustainability reporting.

Does the gender quota law affect bank performances? Evidence from Italy

PurposeThis study aims to examine the impact of an increasing board diversity on the performance of Italian listed banks for the period 2008–2014, taking into account the effects of the implementation of gender quota laws in Italy. The study also investigates the effects of this potential relationship during the crisis that Italy had to cope with since 2011, as well as the potential impact of female directors and their roles on bank boards.Design/methodology/approachTo verify this relationship, the study uses a panel sample of 22 listed banks and applies fixed effects with the Driscoll-Kraay error. Considering the shareholders’ perspective, bank performance (BP) is measured by return on average equity. The robustness of results is verified through return on average assets, Tobin’s Q (a market measure from investors/stakeholders’ perspective) and an alternate estimation model, i.e. GMM.FindingsThe findings highlight a positive relationship between the performance accounting measures and gender diversity, a non-neutral impact of the presence of female directors on boards and a significant and negative effect on market measures.Research limitations/implicationsThe results of the study, as far as accounting measures are concerned, support managerial and legislative efforts toward more gender-balanced boards and the appointment of female directors in executive or independent roles. As per market measures, the results suggest that the presence of women on boards should be considered advantageous in terms of value, so that the market can finally appreciate diverse bank boards.Originality/valueFirst, previous studies did not provide exhaustive results to document the proposed relationship and did not examine this relationship during a financial crisis. Second, the role of female directors on boards is also taken into account. Third, the study highlighted that BP is a multi-dimensional construct, with accounting and market metrics being its distinct dimensions.

Women on Corporate Boards as Symbolic Management

The paper tests for the presence of symbolic management in the appointment of female board directors. We focus on the length of board service of male versus female directors, and make use of the impact of the Davies Review (Davies, 2011) to facilitate identification. The data are based on FTSE All-Share companies between 1996 and 2017. Following the Davies Review in 2011, there is now sufficient data on male and female director boardroom careers from both the pre- and post- 2011 period to conduct a `difference-in- differences' causal analysis. While the Davies Review has triggered a rise in the number of female non-executive director appointments, these women continue to experience a disproportionate exit rate around nine-years of tenure. The results support a symbolic management interpretation of female non-executive director appointments. The study is limited by right censoring. There are directors appointed post-2011 who have yet to complete their careers or cross the nine-year threshold. Our econometric analysis adjusts for this, but it remains a limitation that must be borne in mind. The discretion afforded by existing corporate governance guidelines can have the unintended consequence of accommodating the continued unequal treatment of female directors in the boardroom. The study exposes gender-based biases that persist in a high profile area (the boardroom). The Davies Review has certainly increased female representation in the boardroom but more remains to be done in terms of securing equal treatment for female directors once in post. The evidence presented here supports the view that female director appointments continue to be made for symbolic rather than substantive motives.

Outside Director to Executive: A New View of the Resource-Provision Role of Directors

Our study examines how and why outside directors of firms sometimes accept senior executive roles in those firms, thus converting from outside directors to inside directors. We approach this research question from two levels of analysis: the firm level and the director level. At the firm level, we develop theory to predict that boards utilize outside director appointments when there is a dearth of inside candidates and when firm performance is poor. At the director level, we predict that ongoing executive service in another firm is negatively associated with the conversion, while former executive experience is positively associated with the conversion. Similarly, not-for-profit executive experience is negatively associated with the conversion, while private firm executive experience is positively associated with the conversion. We describe the conversion from outside director to executive as a new way of fulfilling the board’s resource provision role. In addition, we describe how boards manage information asymmetry during selection processes by integrating resource dependency theory and agency theory. Using all outside director appointments in BoardEx, we contribute to strategic leadership research by exploring the role conversion from outside director to executive.

Board Chair Career Variety, Selection of Independent Directors, and Firm Innovation Outcomes

Given that board chairs are regarded as a firm’s most powerful leader in many countries, this study investigates the impact of their career variety on firm innovation outcomes. Building on recent upper echelons theory argument that career variety reflects both one’s dispositional preference for novelty and accumulated cognitive breadth, we propose that board chairs with higher career variety are likely to have not only a stronger motivation to pursue innovation but also a greater capability to facilitate innovation thorough the appointments of independent directors who can help their firms improve innovation outcomes. Consequently, we predict that board chair career variety is positively associated with firm innovation outcomes both directly and indirectly via the appointments of independent directors. Using data from a large sample of publicly listed non-state-controlled firms in China during 2006 to 2016, we find that the number and the overseas experiences of independent directors partially mediate the positive effect of board chair career variety on firm innovation outcomes, as measured by the numbers of patent applications filed and granted. These results support our theoretical predictions and contribute to the literature on how upper echelons impact firm innovation outcomes.

Female Director Appointments Under Institutional Change: Neutralizing Response to Competing Logics

We examine female board appointments in Japan to investigate how managers respond to conflicting institutional logics: all-male insider control vs. gender diversity. Using fuzzy-set qualitative comparative analysis (fsQCA), we find that female board appointments occur when several factors combine to put pressure on firms: stock market underperformance, high levels of visibility, the absence of a stabilizing family owner, and various configurations of foreign shareholder and outside director power as well as the absence of prior female board appointments. However, most firms appoint women with an internal orientation, i.e., who see themselves as working for insiders rather than outside stakeholders such as shareholders. Firms thus adopt the new logics while simultaneously neutralizing its impact. This suggests a possible extension of theory on resolving conflicting institutional logics. We further contribute to our understanding of the international diffusion of corporate governance processes.

Does boardroom nationality affect the performance of UK insurers?

Drawing on the board capital literature, we use a panel data design to investigate the effect of boardroom nationality on the profitability and solvency of property-casualty insurers operating in the United Kingdom (UK). We find that boardroom nationality influences corporate outcomes depending on the financial aspects being measured. For example, North American directors are linked with profitable outcomes, while European directors tend to be associated with better solvency. This reflects differences between the shareholder value corporate culture in North America and stakeholder approaches more common in Europe. Our results could help insurers, regulators, and others (e.g., investors) to better understand the potential performance implications of the appointment of directors of different nationality.

Does Gender Diversity in the Boardroom Matter? Evidence from CEO Inside Debt Compensation

We argue gender-diverse boards are associated with distinct preferences that reassure investors about their commitment to moderate risk and boost long-term corporate survival. Results suggest a strong relation between gender-diverse boards and bondholder-aligned CEO compensation components, particularly when CEOs have greater incentives to take and shift risk. This association is robust to a variety of controls for potential endogeneity, and is more pronounced when women directors are on compensation committees, regularly attend meetings and have influential backgrounds. Compensation spillovers occur with gender-diverse boards choosing similar peers. Bond and stock prices increase around female director appointment announcements, especially for high-yield issuers.

Discussion of Do Female Directors on Corporate Boards Make a Difference in Family Owned Businesses?

ABSTRACTMagnanelli, Nasta, and Raoli (2020) examine the relation between female director presence on corporate boards and firm performance in Italy. Using the mandatory gender quota law that was introduced in Italy as an exogenous shock to the appointment of female directors on corporate boards, they find evidence that female directors on the board are associated with better firm performance, especially for family owned firms. However, how this study is positioned within the literature is unclear. My discussion is centered on this ambiguity.JEL Classifications: G3; M1.

Board structure, director expertise, and advisory role of outside directors

We investigate how a shock to corporate demand for experienced directors (i.e., U.S. Congress’ grant of Permanent Normal Trade Relations status to China in 2000) affects U.S. firms’ board structure and board advisory role. We find that firms appoint more outside directors with China-related experience after the grant. Firms with such directors realize higher returns around announcements of investments involving Chinese firms and better post-deal operating performance, particularly when these directors reside in the U.S. The appointment of directors with China experience is also greeted more positively by the stock market and they gain more board seats after the grant.

Ownership structure and demand for independent directors: evidence from an emerging market

PurposeIn this study, we examine how ownership structure affects the use of independent directors in Vietnam – an emerging stock market.Design/methodology/approachWe develop logit and tobit regression models to investigate the effects of ownership structure on the propensity to use independent directors and the number of independent directors on the board, respectively. Insider ownership and the use of independent directors are proposed to have a non-linear relationship.FindingsWith a sample of 1,318 observations collected from 192 listed firms over the period from 2008 to 2017, we find that insider ownership and independent director appointment have a U-shaped relationship. It is positive when insiders hold a small proportion of shares, and turns out to be negative when insiders hold a large percentage of shares. In addition, both state ownership and foreign ownership are negatively related to firm decisions of appointing independent directors.Practical implicationsOur findings imply that minority shareholders should have appropriate actions to reduce agency costs and protect their own interests. In addition, policymakers should improve the effectiveness of corporate governance legislation to increase the presence of independent directors in order to protect minority shareholders. Moreover, government agencies also need to increase the number of independent directors in state-controlled firms as a means to improve their corporate governance. Foreign investors may be a substitute for independent directors; therefore, firms without independent directors are able to improve their corporate governance by attracting foreign investors.Originality/valueWhile the extant literature shows that independent directors can help firms decrease agency costs of equity in financial decisions and performance, there are relatively few studies investigating corporate decisions to use independent directors. This paper contributes to the literature of corporate governance mechanisms through independent directors in emerging markets.

Board tenure and firm performance

We view director tenure as an indicator of a firm's stability. Longer board tenure indicates that shareholders are satisfied with their director appointments, that the board has the relevant mix of capital, that it is effective at monitoring and advising management, and that the firm is unlikely to face operational and strategic problems that require drastic changes to its board. Using a broad sample of up to 3800 firms over a 20-year period, we show that firms with longer board tenure have higher future abnormal returns. Our evidence suggests that investors misprice board tenure: longer board tenure is associated with higher market valuations but not with higher expected returns as measured by analysts' target prices.

Who Will Board a Sinking Ship? a Firm–Director Interdependence Perspective of Mutual Selection between Declining Firms and Director Candidates

We develop a firm–director interdependence perspective to theorize director appointments as the outcome of a mutual selection process in which firms and director candidates select each other based ...