Director Shareholdings Research Articles

Determinants of the effective tax rate: Board composition of South African firms listed on the Johannesburg Stock Exchange

Motivation Numerous international studies have been conducted to determine the effect of board composition on tax aggressiveness, and ultimately the effective tax rate (ETR) of firms, but to the best of the author's knowledge, no similar research from a South African perspective has been conducted. Purpose This study explores the association between board composition and the ETR of South African Johannesburg Stock Exchange (JSE)-listed firms for the period 2012 to 2021 to obtain an understanding of how corporate governance attributes affect the ETR of firms. Design and methodology A sample of 40 firms is purposively selected from the top 200 JSE-listed firms based on market capitalisation on 31 December 2021. The study employs a quantitative approach by applying the panel data multivariate regression model. Main findings The study shows that board size, as a corporate governance attribute, is a determinant of the ETR of South African JSE-listed firms. Additionally, other board composition-related corporate governance attributes such as independence, gender diversity, and director shareholding showed no substantial association with the ETR. Practical implications The results of this study indicate that the board of directors – specifically its composition – is successful in its role of ensuring that the firm is, and is seen to be, a responsible corporate citizen by paying its fair share of taxes. Novelty This study is the first to offer empirical evidence linking board composition to South African JSE-listed firms’ ETRs. The result of the study therefore fills a research gap and has the potential to guide board governance committees and increase directors’ awareness of their tax-related roles.

Saving or spending? Military CEOs and cost stickiness

ABSTRACT Using Chinese A-share listed manufacturing firms from 2008 to 2018, we examine the effect of CEOs’ military experience on firms’ cost stickiness. We find that firms with military CEOs have higher cost stickiness than those without military CEOs. The results are more pronounced for firms with high social responsibility (in SOEs and firms with better corporate social responsibility performance and higher labor intensity) and weak corporate governance (in firms with CEO duality, less independent directors, no director shareholding and no Big Four auditor). Our research extends the understanding of military CEOs’ influence on firms and sheds light on how CEOs’ characteristics affect cost stickiness.

Executive stock options, informative stock prices and innovation

Prior studies have not reasonably explained why executive stock options (ESOs) encourage innovation through vega rather than delta. This study re-examines the relationship among vega, delta and innovation performance when stock prices are informative. The findings indicate that informative stock prices amplify the delta effect on encouraging executives to improve innovation performance but that informative prices alleviate the traditional positive effect of vega on innovation. Moreover, when stock prices are informative, deep-in-the-money options reduce the positive effect of delta on innovation, whereas the state control, independent directors and manager and director shareholding enhance (reduce) the positive effect of delta (vega) on innovation. The results hold after conducting robustness tests.

Effectiveness of Corporate Governance Attributes on Disclosure of Non-Financial Information in Developing Economies

The study examines how corporate governance attributes enhance disclosure of non-financial information in developing economies using a case study of companies listed on selected Stock Markets in Sub-Saharan Africa. Corporate governance attributes such as Chief Executive Officer (CEO) non-duality, board size, board composition, audit committee independence, block and director shareholdings are examined while controlling for firm size, profitability and leverage. The study adopts a quantitative research approach where panel data is obtained to carry out a comparative analysis of companies listed on stock markets of South Africa, East Africa and Nigeria. The data is collected from annual reports of each company for a period of four years and is analysed to obtain Random- Effects Multiple regression models. Findings indicate that the effect of CEO Non-duality, board size and having a higher proportion of non-executive directors on boards is significant and positive. Block ownership of shares and directors’ shareholdings have a negative effect on disclosure of non-financial information. However, the study does not provide evidence to suggest that Audit committee independence affects non- financial information disclosure. The major contribution of the study is to establish corporate governance attributes that play a vital role in disclosure of non-financial information using a comparative analysis of listed companies in Sub-Saharan Africa. The paper is the first of its kind in developing economies. Keywords : Corporate governance attributes, corporate disclosure, non-financial information. DOI: 10.7176/RJFA/12-4-02 Publication date: February 28 th 2021

Antecedents of audit quality in MENA countries: The effect of firm- and country-level governance quality

This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence, and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.

Corporate boards, shareholding structures and voluntary disclosure in emerging MENA economies

PurposeThe purpose of this paper is to investigate the level of voluntary compliance with, and disclosure of, corporate governance (CG) best practices, and the extent to which board characteristics and shareholding structures can explain discernible differences in the level of voluntary CG disclosure in a number of emerging Middle Eastern and North African (MENA) economies.Design/methodology/approachThe paper uses a number of multivariate regression methods, namely, ordinary least squares, weighted, non-linear, lagged-effects, two-stage least squares and fixed-effects regression techniques to analyse data collected for a sample of listed corporations in emerging MENA economies from 2009 to 2014.FindingsFirst, in general, MENA listed firms have a relatively lower level of voluntary compliance with, and disclosure of, CG practices compared to listed firms in developed countries. Second, the evidence suggests that corporate board characteristics, including board diversity, have a positive association with the level of voluntary CG disclosure. In contrast, the findings indicate that unitary board leadership structure, director shareholdings and government shareholdings negatively impact on the level of voluntary CG disclosure. The study does not, however, find any evidence to suggest that family shareholdings have any significant relationship with the level of voluntary CG disclosure. The findings are generally robust to alternative measures and potential endogeneity problems.Originality/valueThis is one of the first empirical efforts at investigating the association between CG mechanisms and voluntary disclosure in emerging MENA economies that observably relies on a multi-theoretical framework within a longitudinal cross-country research setting.

Board Composition, Ownership Structure, and Firm Value: Empirical Evidence from Switzerland

The purpose of my research is to contribute to the existing corporate governance literature on board composition and ownership structure. Various theories suggest that board independence and the level of inside and outside ownership are important corporate governance elements. The empirical evidence on the effectiveness of these elements is, however, mixed at best. Moreover, the results and conclusions of prior theoretical and empirical research are country-specific and often not universally valid. Against this background, I conduct a panel data analysis for 43 large public companies over a time frame of six years in the Swiss context. My results suggest that a larger fraction of independent directors on the board and the presence of a controlling shareholder do not increase, but decrease firm value. Furthermore, I find some evidence that separated leadership roles and the presence of institutional investors do not increase, but decrease firm value. Finally, I find that while higher non-executive director shareholdings tend to increase firm value, higher executive director and officer shareholdings can increase or decrease firm value. My overall conclusion is that public policy towards certain corporate governance mechanisms has to be reconsidered. This not only applies to the definition and threshold of independent directors, but also to separated leadership roles. In addition, companies with a controlling shareholder might and in my view should be subject to stricter rules and regulations.

Antecedents of Audit Quality in MENA Countries: The Effect of Firm- and Country-Level Governance Quality

This paper investigates the effect of firm- and country-level governance quality on audit quality, as measured by (i) auditor choice and (ii) audit fees. Our findings are three-fold. First, our evidence suggests that board independence is positively related to engaging a Big 4 auditor, while family shareholdings show a negative association with hiring a Big 4 auditor. Second, board size, board independence and director shareholdings are positively related to audit fees, while government shareholdings and family shareholdings show a negative relationship with audit fees. Third, higher country-level governance quality is positively associated with hiring a Big 4 auditor and paying higher audit fees. Overall, we provide evidence that external audit quality in Middle Eastern and North African (MENA) countries is affected by firm- and country-level governance quality, which suggests that governance quality and external audit quality seem to be complements in protecting stakeholders interests through securing higher audit quality. Our results are robust to controlling for alternative measures and endogeneities.

A Cross-Country Investigation of Corporate Governance and Corporate Sustainability Disclosure: A Signaling Theory Perspective

There is a dearth of research on corporate governance and total sustainability disclosure (economic, environmental, and social) in developing, particularly South Asian, countries. This is unique cross-country research on South Asian countries’ corporate governance elements and total sustainability disclosure practices. The study considers a set of insightful theories, namely, the signaling and agency theories of understanding the motives and drivers of sustainability reporting. Based on data from the Global Reporting Initiative database, the study analyzes Bangladesh, India, and Pakistan. We have collected annual report and sustainability reports from the GRI database for the period between 2009 and 2016. Based on the signaling and agency theories, the study investigates how board and shareholding structures convey signals to the market and different stakeholders. Our empirical results find that total sustainability disclosure has a positive and significant relationship with foreign shareholding, institutional shareholding, board independence, and board size. On the other hand, we document that director shareholding is negatively but significantly associated with total sustainability disclosure. Therefore, we conclude that corporate governance elements have very strong influential power to send positive signals to the market that lead to reduced information asymmetry and ensuring honest signals from different stakeholders.

Individual investors and local bias in the UK, 1870–1935

AbstractThis article examines the long‐run evolution of local bias by UK investors between the 1870s and the 1930s. It uses a large sample of nearly 30,000 shareholders based on 197 sets of share records, a large and representative database of the investor population across sectors and time. It investigates the structure and the evolution of local investment preference between shareholders and the companies in which they invested, as measured by the distance between where they lived and corporate headquarters. The study offers evidence of strong initial local investment preference, which declined over time for non‐Londoners, but remained strong for Londoners until the 1930s. Local investment preference of security holders was related to the size of the board of directors and, for wealthy investors, was related to the age of the firm. For large firms, local networks between investors and directors appear stronger when director shareholdings and voting rights were important. This study supports the analytical hypothesis of local informal trust networks between investors and directors as a means to overcome informational asymmetries and weak legal protection, and provides evidence that local preference was a means to curb insider opportunism and private benefits of control.

Voluntary employee reporting by the wholesale and retail companies listed on the Johannesburg Stock Exchange

Using stakeholder theory, this article investigates the level, subject types, location and determinants of voluntary employee disclosures in the annual reports of the wholesale and retail companies in South Africa listed on the Johannesburg Stock Exchange (JSE). It finds that the levels of voluntary employee disclosures have increased over the sampled period and that this trend is headed by Massmart. In addition, this paper finds that the degree of disclosure of various subject types does not stay the same over time, and that most of these disclosures are presented in the sustainability report section of the annual reports. Further findings indicate that sampled companies with significant executive director shareholding engage in less voluntary employee disclosure than companies with lower executive director shareholding. Lastly, another finding indicates that a high BEE rating score for companies is significantly associated with high voluntary employee disclosures.

Governança corporativa e remuneração dos diretores executivos das empresas Brasileiras

This study aimed to analyze the corporate governance attributes that affect the compensation of executive directors of Brazilian public companies. We conducted a descriptive, documentary and quantitative research. The study sample comprised the 100 Brazilian companies listed on the BM&FBovespa, belonging to the Novo Mercado. From the study results it was found that the variable size of the company showed a significant relation to the fixed remuneration. The shareholding of directors, board size and ROA were significant to the variable remuneration, however, the stake and the size of negatively board of directors. The size of the board, the ROA and firm size were related significantly to the total remuneration. We conclude that the corporate governance attributes that affect the compensation of executive officers of the companies analyzed were the shareholdings of directors, size of the board, ROA and firm size.

What drives corporate governance quality in emerging African economies? Evidence from Ghana

This paper investigates the determinants of good corporate governance across Ghanaian listed firms for the study period 2000 to 2009. The Ghanaian Code of corporate governance introduced in 2003 was the first attempt to make official corporate governance guidelines on best practices not backed by the force of law of which the Ghanaian firms were encouraged to comply with its provisions. As such, firms listed on the Ghana Stock Exchange are expected to comply with the recommended governance provisions in order to promote good corporate governance. Some of the key provisions in the code are separating the posts of the Chief Executive Officer and the Chairman of the board of directors, limiting the board size to between eight and sixteen directors, having at least one-third of the total membership of the board to be independent directors, and the establishment of separate board committees to be responsible for audit and executive remuneration. Other provisions call for improvement of the relationship between shareholders and managers, and provisions on financial affairs, auditing and disclosure practices. We develop a corporate governance index and its six subindices to measure firm-level governance quality. Annual reports of the Ghanaian listed firms are scored according to their governance disclosure during the whole period, 2000–2009 and pre 2003 and post 2003 introduction of the Ghanaian Code. A panel data analytical framework was used to find the determinants of strong corporate governance in Ghanaian listed firms. The empirical results over the whole period, 2000–2009 show statistically significant and positive relationship between external financing needs, firm size, institutional shareholdings and governance quality measured by the Ghanaian corporate governance index. While we find no relationship between external financing needs, director shareholding and governance quality pre 2003, the result is positive and statistically significant for post 2003. The most consistent relationship we find concerns firm size and institutional shareholdings. However, growth opportunities and firm performance measures appear to have no association with strong governance in Ghanaian firms. The results have important implications for the Ghanaian firms and regulators. In particular, the Ghanaian firms with high external financing needs would have to improve their governance structures in order to attract such facility. For regulators, it is important to have clear code of corporate governance guidelines in place where firms’ governance practices can be benchmarked. In addition, the study contributes to our understanding of the firm attributes affecting strong corporate governance in emerging African economies.

Executive Compensation, Ownership Structure and Loan Quality of Banks in Ghana

AbstractThis paper analyses the effects of executive compensation and ownership structure on loan quality of banks. The study uses a panel data on 26 Ghanaian banks over the period, 2003–2011. Using a dynamic panel model, estimations are made using the Generalized Method of Moments. The results show that management is efficient when director shareholding is very prominent in banks. Institutional ownership and public listing of banks also have a significantly negative relationship with non‐performing loans, while lag of non‐performing loans, equity ratio, exchange rate depreciation and increases in net interest margins are seen to have a negative effect on loan quality. Executive compensation had no significant effect on loan monitoring.

Setting the Record Straight: Three Concepts of the Independent Director

Despite the surprisingly shaky support in empirical research for the value of independent directors, their desirability seems to be taken for granted in policy-making circles. Yet important elements of the concept of and rationale for independent directors remain curiously obscure and unexamined. As a result, the empirical findings we do have may be misapplied, and judicial gap-filling may be harder than imagined when legislative intent cannot be divined or is contradictory. This article attempts to unpack the concept broadly understood by the term independent director and to distinguish among its various concrete manifestations. In particular, I discuss the critical differences between independent, outside, and disinterested directors, arguing that these manifestations serve different purposes and should not be confused one with the other. This discussion is illustrated with examples from U.S. state and federal law as well as stock exchange regulations, and supplemented with comparative reference to the United Kingdom, Germany, and Japan, with a brief mention of Chinese practice as well. I also argue that the whole purpose of having independent directors is surprisingly undertheorized, leading to inconsistent rules, in particular regarding the effect of director shareholding, both across countries and within the United States.

Information Transparency, Corporate Governance, And Convertible Bonds

Information transparency is a popular topic in capital markets. A firms corporate governance policy, which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors. In this paper, we numerically analyze: (a) the effect of the composition of the board structure on corporate information transparency under the code law system, and (b) the effect of information transparency on the initial return rate of convertible bonds. The results of our study revealed that the board structure affects corporate information disclosure policies under the code law system. Specifically, CEO duality tends to bring about lower information transparency, whereas better information transparency emanates from a higher proportion of independent directors. However, there is a lack of conclusive evidence to support the view that the shareholdings of directors and large shareholders are correlated with information transparency. We also show numerically that greater information transparency combined with lesser information asymmetry (between insiders and outsiders) leads to a lower initial return rate of convertible bonds.

Board Composition, CEO Duality and Corporate Financial Performance

This research study sheds light on the link between different board structure attributes and financial performance among 40 firms listed with Karachi Stock Exchange, by looking at the listing requirements which persuade greater board independence. In particular this study provides evidence that board size and sales growth positively affect corporate financial performance in Pakistan. Further according to the findings of this research there is a negative relationship of executive and non-executive (independent) directors on corporate financial performance of firms in Pakistan. Findings show that there is a mixed result shown for CEO duality and director's share holding, ROE and ROI has a positive relation with CEO duality while negative association encounters as per Tobin's q model; whereas ROE relates positively with director's share holdings while ROI and Tobin's q negatively relates to director's share holdings. The rest of corporate governance parameters e.g. internal holdings and firm size have mix relationship with financial performance

Corporate governance and risk-taking in New Zealand

We analyse the impact of firm-level corporate governance practices on the riskiness of a firm’s stock returns in a setting that can be considered as less conducive to managerial risk-taking. Our empirical evidence, based on a comprehensive sample of New Zealand firms, shows that firms with large boards are associated with lower levels of risk-taking, ceteris paribus. Furthermore, our results indicate that multiple large shareholders facilitate higher levels of risk-taking by the firm. Finally, our results also show that concentrated shareholdings of inside directors have a negative relation to risk-taking. Our findings are robust to controls for the three potential sources of endogeneity. Since prior work documents results consistent with the view that institutional and market environments largely determine governance outcomes, our work has implications for managers, investors and policy makers, particularly in less developed capital markets with weaker corporate takeover regimes and less performance-oriented managerial compensation.

Board Changes in Response to Extremes in Performance

This study contrasts changes in board structure in firms at the extremes of industryadjusted performance. We find pervasive changes in board size, composition, and director pay for firms whose stock market performance ranks in the uppermost and lowest deciles of industryadjusted returns over the period 2001-2005. Our evidence shows that these companies tended to change their board’s size, added outsiders to the board, and increased director pay. Significant differences between the two groups are documented, with poor performers making more dramatic changes in all three of these governance metrics. We failed to find changes in other structural characteristics such as classified boards and shareholdings of directors.

Corporate Governance and Firm Performance of Listed Firms in Sri Lanka

The aim of this study is to examine the relationship between corporate governance structures and firm performance of listed firms on Colombo Stock Exchange (CSE) in Sri Lanka. Data were collected from 174 firms in the financial year 2010 and multiple regression analysis were used to examine whether the existing corporate governance mechanisms influence the firm performance of listed firms in Sri Lanka. The study found evidence that, (i) board size and proportion of non- executive directors in the board shows a marginal negative relationship with firm value, (ii) proportion of non-executive directors in a board and financial performance of firm shows negative relation contrary to the findings of previous studies. The firm size and director shareholdings have a significant impact on firm performance of listed firms in Sri Lanka.