Higher Proportion Of Independent Directors Research Articles

How effective is corporate governance in preventing financial fraud in Indonesia Kompas100 firms?

This study examines the relationship between corporate governance practices and the incidence of financial fraud among firms listed on the Kompas100 Index in Indonesia. Utilizing a panel dataset of 1,000 companies over the period from 2015 to 2023, the research employs a Fixed Effects Model (FEM) to analyze the impact of key governance variables, including board composition, ownership structure, and audit committee effectiveness, on fraud occurrence. The findings reveal that firms with a higher proportion of independent directors and more effective audit committees are less likely to engage in financial fraud. Conversely, concentrated ownership and higher leverage are associated with an increased likelihood of fraud. These results underscore the importance of robust governance mechanisms in preventing fraud, particularly in the context of Indonesia's evolving corporate landscape. The study also discusses the limitations of the research and offers policy recommendations to strengthen corporate governance frameworks, thereby enhancing the integrity of Indonesia's financial markets.

Enterprise risk management, corporate governance and insurers risk-taking behaviour in South Africa: evidence from a linear and threshold analysis

PurposeThis study examines the linear and non-linear effects of enterprise risk management (ERM) and corporate governance (CG) on insurers’ risk-taking behaviour.Design/methodology/approachThe study employed panel data of 63 insurers from South Africa over the period 2015 and 2019. The study used the generalised method of moments (GMM) to determine the direct relationship, while the dynamic panel threshold technique was utilised to discover whether there is non-linearity in the relationship and the threshold level at which ERM and CG stimulate insurance risk-taking.FindingsThe result from the GMM elicits a positive relationship between ERM and risk-taking, implying that insurers with a robust ERM system are more likely to pursue higher risks. The empirical evidence also suggests that board size and board independence improve insurers’ risk-taking. Contrarily, gender diversity shows an inverse relationship with risk-taking. The dynamic panel threshold regression confirms non-linearities between ERM, CG and risk-taking. The empirical evidence indicates a U-shaped relationship between ERM and risk-taking, implying that a robust ERM system increases insurers’ risk-taking and vice-versa. Further, board size and independence reveal an inverted U-shaped relationship, suggesting that larger boards and a higher proportion of independent directors exhibit lower risk-taking. However, gender diversity presents a negative relationship, demonstrating a strong impact at higher threshold levels. This tells that the presence of females on the board reduces insurers’ risk-taking preferences.Practical implicationsDue to the risk-bearing nature of the insurance business, it is required that they ensure a robust ERM system for prudent risk-taking decisions. This demands strict adherence to ERM principles and allocating sufficient resources for effective implementation. Also, there is a need for strong CG structures that pay more attention to diversity when selecting board members due to their influence in ensuring improved risk-taking choices.Originality/valueThis study contributes to the existing literature by providing insights into the under-researched role of ERM and CG in insurers’ risk-taking behaviour. The study further extends the literature by providing evidence on the non-linearity and threshold levels at which ERM and CG influence insurers’ risk-taking choices. The findings are unique and contribute to the growing body of literature documenting the need for strong ERM and CG systems in insurance companies.

THE ROLE OF BOARD STRUCTURES IN INCREASING BANK ACCOUNTABILITY: GLOBAL EXPERIENCE

The governance of banking institutions plays a critical role in the stability and integrity of financial systems globally. The structure of the board of directors significantly influences how banks manage risks, comply with regulations, and align operations with the interests of shareholders and other stakeholders. Understanding how board structures differ across regulatory and cultural landscapes is crucial for enhancing bank accountability and performance. This article aims to critically evaluate how various board structures impact the accountability of banking institutions across different global contexts. The goal is to identify effective governance practices that can be adapted to improve bank accountability worldwide. Employing a comparative case study methodology, this research analyzes board structures in banking institutions across continents including North America, Europe, Asia-Pacific, the Middle East, Africa, and Latin America. Data from primary sources like interviews and secondary sources such as regulatory documents and academic articles are synthesized to assess the impact of board configurations on governance and accountability. The analysis reveals that effective board structures often include a high proportion of independent directors, robust audit and risk committees, and a commitment to diversity, which correlate with enhanced accountability and financial performance. However, variations exist due to cultural, economic, and regulatory differences that influence board effectiveness across regions. The findings suggest that while there is a global trend towards standardizing governance practices, local adaptations remain essential. The study recommends that banks and regulators focus on enhancing board independence, diversifying board composition, and strengthening risk oversight to improve governance frameworks. Future governance models should incorporate a dynamic approach to adapt to technological advancements, economic shifts, and societal expectations, ensuring that banking institutions can effectively meet emerging challenges and opportunities.

Executive compensation and corporate sustainability: Evidence from ESG ratings

Selecting A-share listed companies in Shanghai and Shenzhen, China, during the period of 2012–2021 as research subjects, this study examines the relationship and operational mechanisms between executive compensation and corporate ESG Ratings. It is found that executive compensation incentives can significantly enhance corporate ESG Ratings. This effect is achieved through promoting green innovation efficiency, enhancing environmental information disclosure, and improving financial performance. However, this positive impact weakens with an increase in management shareholding, but strengthens with a higher proportion of independent directors. When compensation exceeds appropriate levels, overcompensation leads to a decline in ESG Ratings. The significance of this study lies in revealing potential pathways for enhancing corporate sustainability through executive compensation incentives, while also emphasizing the importance of formulating appropriate compensation strategies.

Corporate culture, corporate governance, and independent directors: evidence from textual analysis

PurposeTaking advantage of a unique measure of corporate culture obtained from advanced machine learning algorithms, this study aims to explore how corporate culture strength is influenced by board independence, which is one of the most crucial aspects of the board of directors. Because of their independence from the corporation, outside independent directors are more likely to be unbiased. As a result, board independence is commonly used as a proxy for board quality.Design/methodology/approachIn addition to the standard regression analysis, the authors execute a variety of additional tests, i.e. propensity score matching, an instrumental variable analysis, Lewbel’s (2012) heteroscedastic identification and Oster’s (2019) testing for coefficient stability.FindingsThe results show that stronger board independence, measured by a higher proportion of independent directors, is significantly associated with corporate culture. In particular, a rise in board independence by one standard deviation results in an improvement in corporate culture by 32.8%.Originality/valueConducting empirical research on corporate culture is incredibly difficult due to the inherent difficulties in recognizing and assessing corporate culture, resulting in a lack of empirical research on corporate culture in the literature. The authors fill this important void in the literature. Exploiting a novel measure of corporate culture based on textual analysis, to the best of the authors’ knowledge, this study is the first to link corporate culture to corporate governance with a specific focus on board independence.

Is corporate governance a significant factor in corporate social responsibility disclosure? Insights from China

This comprehensive study delves into the intricate relationship between corporate governance and Corporate Social Responsibility Disclosure (CSRD) within the framework of China’s institutional landscape. By analyzing an extensive dataset comprising 35,435 firm-year observations from 3,889 A-share listed companies spanning the years 2006 to 2019, the research scrutinizes various governance mechanisms, including board size, independence, CEO duality, and ownership concentration.The investigation affirms that larger boards and a higher proportion of independent directors exert a positive influence on CSRD. In contrast, a substantial shareholding ratio held by the largest shareholder proves to be a hindrance to the transparent disclosure of CSR initiatives. While the impact of CEO duality on CSRD is noted, the statistical significance of this relationship remains inconclusive.These findings underscore the nuanced dynamics of governance and ownership structures in shaping CSR initiatives. The findings highlight the nuanced impact of governance and ownership structures on CSR initiatives, offering valuable insights for managers and policymakers navigating CSR strategies in China’s business landscape. The insights garnered from this study hold valuable implications for both corporate managers and policymakers navigating the landscape of CSR strategies within the unique contours of China’s business environment. AcknowledgmentThis paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “Embracing EU corporate social responsibility: challenges and opportunities of business-society bonds transformation in Ukraine” – 101094100 – EECORE – ERASMUS-JMO-2022-HEI-TCH-RSCH-UA-IBA / ERASMUS-JMO-2022-HEI-TCHRSCH https://eecore.snau.edu.ua/Oleh PASKO expresses sincere gratitude for the support received from the Kirkland Research Program, generously provided by the Leaders of Change Foundation established by the Polish-American Freedom Foundation.

Relationship Between Board Characteristics and Level of Corporate Disclosure Among Listed Companies in Tanzania

This paper examined the relationship between board characteristics and Level of corporate Disclosure (LCD) among Tanzanian listed companies. Relationships between board size, board independence; directors’ remuneration and LCD were examined. The 105 firm-year observations for 21 listed companies in Tanzania from 2016 to 2020 were used. The study used the agency theory. An explanatory research design was employed. Balanced panel data for analysis were gathered using a survey method. Data were analyzed using descriptive and inferential statistics. Regression analysis was used in testing hypotheses. Findings showed that board size, board independence, directors’ remuneration were positively related to LCD. It was recommended that listed companies should appoint a higher proportion of independent directors to their boards. Independent directors can provide impartial oversight and are more likely to prioritize transparency and disclosure. Companies are adviced to optimize board size aim for a board size that is appropriate for their specific needs and industry. Moreover, listed companies should adopt transparent and fair director remuneration practices. This includes disclosing the structure of director compensation, including; salaries, bonuses, stock options, and other benefits. Policymakers and regulators should consider implementing or strengthening regulations related to board composition, independence, and disclosure practices.

Digital transformation and bond credit spread

We investigate the impact of enterprise digital transformation on bond credit spread based on Chinese A-share listed companies. The empirical results show that digital transformation has a significant impact on reducing credit spread and the negative relation is robust to a number of robustness checks. Subgroup analyses suggest that the reduction effect is more pronounced in state-owned enterprises, non-duality firms, firms with a higher proportion of independent directors, and firms located in high-marketization areas or eastern regions. Increasing total factor productivity, reducing information asymmetry, and enhancing internal control are three possible mechanisms by which digital transformation helps reduce credit spread.

CEO tenure and environmental fraud for listed family firms

AbstractThis paper examines CEO tenure's impact on the environmental fraud committed by listed Chinese family firms from the year 2012 to 2019. Using a bivariate probit model, we provide robust evidence that CEO tenure is positively related to the environmental fraud commission, indicating that longer‐serving CEOs are more likely to violate environmental regulations and to commit fraud in the family firms. Besides, when there is a higher proportion of independent directors, CEO tenure is negatively related to the environmental fraud commission but positively related to fraud detection. Moreover, when there is a greater proportion of family members in senior positions, CEOs with longer tenure are more likely to commit environmental fraud. Our additional analysis finds that compared to non‐family professional CEOs, family CEOs are more likely to commit environmental fraud. Overall, our results call for the introduction of CEO tenure limits and the increased recruitment of independent directors in family firms.

Exploring the relationship between corporate governance and firm's performance: Does political connection matter?

AbstractThe purpose of this research is to investigate the influence of corporate board and audit committee characteristics on firm performance as measured by accounting‐based ratios (earnings per share, return on asset, and return on equity) as well as the market‐based measure (Tobin's Q). In addition, this research introduces political connections to examine whether it can moderate the relationship between corporate board characteristics and firm performance. The study reveals that a higher proportion of independent directors and CEO duality positively affected firm performance. However, board meetings and board financial experience have no affected firm performance. The study also shows that audit committee independence, audit committee size, and audit committee expertise are positively related to firm performance. In contrast, it finds no discernible impact of audit committee meetings on firm performance. Our findings also suggest that the beneficial influences of the corporate board, in terms of higher firm performance, are greater in firms with political connections. To the best of the researchers’ knowledge, this is almost certainly the first analysis to examine the relation between the corporate board, audit committee characteristics, and firm performance, and the moderating effect of political connection of this relationship.

The Moderating Effects of Board Independence and the Separation of Chairman–Chief Executive Officer Duality Roles on a Firm’s Value: Evidence from the Thai Listed Firms

Since the 1997 financial crisis, good corporate governance is one of the most contentious problems for Thai listed companies’ long-term viability. Unlike earlier research in Thailand, this article uses a three-level hierarchical regression model to examine the moderating effects of board independence and the separation of chairman–chief executive officer (CEO) duality roles on the firm’s value of the Thai listed firms between 2010 and 2019. This study confirms a negative relationship between family ownership and a firm’s value in Thailand. Nevertheless, it reveals that the association between family ownership and firm’s value becomes positive if the Thai listed firms have a high proportion of independent directors. Further evidence confirms that the separation of chairman–CEO duality roles can increase a firm’s value, but it cannot solely enhance the value in those firms with high family ownership. Finally, this study discusses empirically-based practical implications and recommendations.

Do independent directors and big-4 audit firms limit classification shifting: evidence from Indian firms

PurposeThis study investigates the moderating role of Big-4 audit firms on the association between board independence and classification shifting (CS) in Indian firms.Design/methodology/approachThis study has employed a fixed-effect panel data regression model to analyze the sample data. Board independence is measured by taking the proportion of independent directors on a firm’s board. CS is measured from the core earnings expectation model (McVay, 2006). Principal Score Matching is applied to validate the results.FindingsBased on 6,016 firm-year observations of Indian firms listed on the Bombay Stock Exchange, results show that firms with a higher proportion of independent directors on board are effective in limiting expense CS. Further, firms that Big-4 audit firms audit play a significant role in curbing expense CS. Overall, results also exhibit that Big-4 audit firms significantly influence the association between board independence and CS.Originality/valueThis study is one of its kind to examine the moderating role of Big-4 audit firms between board independence and CS.

Essays on Corporate Governance and Firm Performance

Purpose: The purpose of the study is to check how Corporate Governance practices by firms are increasingly becoming a critical element of a firm’s performance and an area of great concern to all stakeholders, particularly market regulators and shareholders. Design/methodology/approach: The current work approach to conducting a review of all relevant research issues around corporate governance. Researchers have developed various indices to measure Corporate Governance by using proxies like Board size, number of independent directors, the attendance record of board members, etc. Corporate governance practices are an important tool for reducing agency costs and an effective board, a higher proportion of independent directors, a vigilant audit committee, etc. Findings: The studies have proved that corporate governance practices are more developed and associated with developed economic markets as compared to developing economies. Similarly, studies have evidenced that Corporate Governance systems and architectures are more observed in large firms whereas it is poor in small firms. Also, we highlight research work that clearly proves that Corporate Governance is better in professionally managed companies as compared to family own businesses. The current work also highlights the uniqueness of corporate governance in the banking sector. Originality: The study is quite different from the other studies done related to Corporate Governance in the market as it is an overall summary to compare the level of Corporate Governance and its impact on the market performance by comparing the corporate governance in developed and developing economies, size of the firm, ownership structure and the special case for the banking sector. Practical Implications: The work sends a very strong message to the markets (both the AMCs as well as the retail investor community) to watch out for corporate governance practices while making investment choices or decisions. Firms with a poor track record of corporate governance can be avoided while creating a portfolio and regulators need to keep a strict vigil on such firms.

Audit committee independence and financial expertise and earnings management: evidence from China

This paper investigates the effect of the audit committee's independence and financial expertise on financial reporting quality. In particular, we investigate the relationship between the audit committee's independence and financial expertise and accrual earnings management. Using a sample of Chinese public firms over the period of 2010 to 2017, the findings show a negative association between the independence of the audit committee and accrual earnings management. This finding suggests that a high proportion of independent directors on the audit committee enhance the monitoring role of the audit committee over earnings quality. We also, find no evidence regarding the effect of the audit committee's financial expertise on accrual earnings management. Our findings are robust to the potential endogeneity problem. This study has important implications for policymakers and other stakeholders.

How far the ownership structure is relevant for CSR performance? An empirical investigation

PurposeTaking hints from the lacunas in the field of ownership structure and corporate social responsibility (CSR) performance of the firms in India, especially when the moderating effect of certain corporate governance mechanism comes into play, this study aims to attempt to fulfill the gap by exploring the ownership structure of the firm (i.e. foreign ownership, institutional ownership and government ownership) and the CSR performance of the firm, when moderated by board independence of the firm. In an additional analysis, the study explores the non-linear effect of foreign ownership structure on the CSR performance in the Indian context.Design/methodology/approachThe study incorporates a strongly balanced panel data set of 280 non-financial National Stock Exchange 500 listed firms for the study period of 2013–2019. The study uses both static and Arellano–Bond dynamic panel model under generalized method of moments (GMMs) framework to establish the relationship between the studied variables.FindingsThe study acknowledges a positive impact of the foreign investors in the CSR performance of Indian firms with a higher proportion of independent directors on the board. The study further finds a contrarian role of government ownership in Indian context among the sampled firms. The study also in its extended analysis finds a non-linear inverted U-shaped relationship between foreign ownership (FO) and the CSR performance, which shows that FO positively impacts the CSR performance until a threshold level of 34% after which the curve starts declining.Practical implicationsOne of the major implications this study provides for the corporate policymakers is that the firms with a string penchant for philanthropic activities such as CSR should be concerned with attracting more foreign investors in their shareholding. Also, a higher proportion of independent directors on the board boost the engagement of the firm in CSR works.Originality/valueThe moderating effect of board independence in the ownership structure–CSR relationship attempted by this study is a rare attempt in a developing economy, such as India, and offers a fresh dimension to the study. Also, the non-linearity relationship between FO and the CSR performance and the threshold level providing the twofold effect of the variables is an innovative research attempt, especially in regard to a developing country like India.

Venture Capital Time Bombs and New Ventures: Do Boards Limit the Damage?

Venture capital funds have a limited lifecycle, which requires venture capitalists (VCs) to liquidate investments and return capital by the end of the fund. VCs shift attention from growing to exiting ventures as funds age. When valuable exits appear less likely, VCs facing exit pressure may pursue low-value M&As or liquidations. This pursuit could hurt the interest of those ventures that can continuously operate. Venture boards play a crucial role in exit decisions, so it is unclear if a VC’s exit pressure has a material impact on venture exit, and if board composition can limit the impact of the VC’s exit pressure. Building on resource dependence theory, we predict and show that VCs’ exit pressure increases the likelihood of low-value M&As and liquidations. We also find that the presence of non-CEO founders and CVCs on the board exacerbates the impact of VCs’ strong exit pressure, thus increasing the likelihood of low-value M&As and liquidations, while a higher proportion of independent directors alleviates the effect of VCs’ strong exit pressure on ventures. The results suggest inviting VCs onto board solves resource dependence in the short-term but has future concerns, and board composition influences the interdependent relationship between ventures and VCs.

The Relationship between Corporate Governance Characteristics and Earnings Quality---Takes the IT Industry of China Listed Companies as a Sample

Since the meeting of China Securities Regulatory Commission in 2020 once again emphasized the issue of earnings quality of corporate governance, this paper intends to study this issue from different perspectives. This study takes the IT industry of China's A-share listed companies from 2015 to 2019 as the sample, and makes an empirical analysis with the fuzzy set/ Qualitative Comparative Analysis (fs/QCA). The results show that the companies with large scale and good corporate governance concept, poor financial structure but with the assistance of external experts, high salary and high proportion of independent directors have relatively high earnings quality. According to the above research results. According to the findings, we put forward the following suggestions. For enterprises, good corporate governance concept and the concept of integrity are very important, but there must be efficient operation of the board of directors in order to play the role of corporate governance. Therefore, the size of the board of directors should not be too large, but it can be adjusted flexibly depends on whether the required professionals are enough. In addition, enterprises with poor financial structure should rely on the assistance of professional managers, rather than using earnings manipulation to obtain short-term benefits. For the regulators of listed companies, the procedures of independent directors’ selection should be more strictly supervised, so as not to make the setting of independent directors become mere formality. For investors, we should always pay attention to the corporate governance, and announce the disclosure of real-time information about directors, supervisors and senior executives, to prevent losses caused by investment misjudgment.

Do bank loans still convey information to investors? Evidence from the split share structure reform in China

Bank loans can convey information about the borrowing firms that have proper corporate governance systems. Using a sample of bank loan announcements in China, we find that the market reaction is positive after the split share structure reform in 2005, which aligns the interests of large shareholders and minority shareholders, government and public investors, and alleviates their tunneling incentives. We also find that this effect is more pronounced for private firms as the reform mainly enhances corporate governance for private firms. The signaling role of bank loans is less pronounced for firms with less severe information asymmetry after the reform, e.g. higher shareholdings of mutual funds and higher proportion of independent directors. Related party transactions decrease when they obtain bank loans after the reform, which reflects the alleviation of tunneling after the reform.

Eyes on the prize: CEO and director retirement preferences and acquisitions

AbstractWe examine whether the age of CEOs and independent directors impacts the likelihood of receiving a successful takeover offer. First, we replicate and confirm the results of Jenter and Lewellen and find that retirement age CEOs (age 64–66) are more likely to receive successful takeover offers. Second, we extend their study by investigating the retirement preferences of independent directors. We find that the likelihood of receiving a successful takeover offer increases when a higher proportion of independent directors are at retirement age. This finding suggests that independent directors have similar retirement preferences to CEOs.

The Effect of Corporate Governance and Ownership Structure on Financial Performance of Listed Companies in Nepal

The paper attempts to analyze relationships among corporate governance, ownership structure and firm performance in Nepal. The study comprises of panel data set of 25 firms listed at Nepal Stock Exchange (NEPSE) covering a period of five years from 2012 to 2016. The econometric methodology for the study consists primarily of least squares dummy variable (LSDV) model, fixed and random effects panel data models and two-stage least squares (2SLS) model. The study finds bi-directional relationship between corporate governance and performance. Among corporate governance internal mechanisms; smaller board size, higher proportion of independent directors, reducing ownership concentration, improving standards of transparency and disclosure, and designing appropriate director compensation package are important dimensions that listed firms and regulators in Nepal should focus on. Ownership concentration is found to have positive effect on performance; however, it affects corporate governance negatively. This study raises understanding and provides empirical evidence for endogenous relationship between corporate governance and performance and offers support for principal-principal agency relationship. The results of this study lead to several practical implications for listed firms as well as policymakers of Nepal in promoting sound corporate governance practices and codes. For listed companies, the improvement in compliance with a code of corporate governance or voluntary adoption of best practices can provide a means of achieving improved performance.