Non-executive Directors Research Articles

Evaluation of Internal Audit Standards as a Foundation for Carrying out and Promoting a Wide Variety of Value-Added Tasks-Evidence from Emerging Market

This research paper aims to evaluate the effectiveness of internal audit standards as a foundation for carrying out and promoting a wide variety of value-added tasks in emerging markets. Three Jordanian telecommunications firms were the subject of the study. In each firm, the non-executive directors, who serve on the Audit Committee, also received a questionnaire that was designed for this objective. In total 85 questionnaires were accepted and analyzed using traditional statistical methods such as descriptive statistics, arithmetic means, standard deviations, and percentages, and resolution data were examined using the statistical application SPSS. According to the annual report for the year 2021, telecommunication businesses generally followed IIA International Internal Audit Standards. Application Standards were employed to a high degree in second place, after Attribute Standards, which were used primarily in the first place. In those firms, performance standards were not used. The study also found that this form of application is moderately constrained by a few challenges and barriers. The study recommended that these organizations broaden the scope and scale of internal auditing standards, particularly performance requirements. Finally, the generalization of research findings is limited because the study is limited to three Jordanian telecommunication companies.

Investigating the link between board independence and dividend distributions in South Africa

Purpose: As shareholder-elected monitors, independent non-executive directors (INEDs) should ensure that managers do not retain earnings to promote their own interests. The relationship between board independence and dividend distributions was hence investigated for selected companies listed on the Johannesburg Stock Exchange (JSE). The country offers a well-developed corporate governance framework to listed companies.Design/methodology/approach: Data on the considered companies’ dividend payout ratios (DPRs), board independence and six control variables were obtained from Bloomberg for the period 2007–2021. The significance of the observed trends in these variables was considered by conducting analysis of variance (ANOVA) and Fisher’s least significant difference (LSD) tests. The hypothesised relationship was assessed using a mixed-model regression.Findings/results: The results are in line with prior research showing that dividends are often omitted or reduced during and after crisis periods, that is, the global financial crisis (2008/2009) and the coronavirus disease 2019 (COVID-19) pandemic (2020/2021). A negative but statistically insignificant relationship was reported between DPR and board independence.Practical implications: Although board independence was not significantly related to dividend distributions for the sampled companies, INEDs still perform an important monitoring role. Shareholders are thus encouraged to play a more active role in the election of these directors.Originality/value: This study extends and refines previous research in South Africa and reveals new insights regarding board independence and dividend distributions during three King regimes and distribution-related regulatory changes.

Corporate Governance Mechanisms and Financial Performance of Listed Companies in Nigeria

This study investigated the relationship between corporate governance mechanisms and financial performance of listed consumer goods manufacturing firms in Nigeria for the period of 2011 to 2020. The specific objectives were to investigate the relationship between board size on return on equity, and evaluate the relationship between board independence on return on equity, board compensation on return on equity and board diligence on return on equity of listed consumer goods manufacturing firms in Nigeria. The study adopted ex post facto and correlational research designs. The population of the study was twenty one (21) listed consumer goods manufacturing firms as at the end of 2020. The study used a census approach to determine a sample size of twenty one (21) firms. Secondary data from the published annual financial reports of the sampled firms were used for data analysis. Descriptive statistics, correlation coefficient and multivariate analysis were used. The results disclosed that board size has a negative and insignificant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board independence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board compensation has a positive and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; and board diligence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria. The study concludes that corporate governance mechanisms influence the financial performance of listed consumer goods manufacturing firms in Nigeria. The study recommends among others that board sizes should be enhanced as this allows for the appropriate combination of directors. A large board increases the chance of directors having appropriate knowledge, skill and networks. The knowledge, skill and networks of directors may increase the performance of an organization; non-executive directors who act as professional advisers to ensure competition among insiders encourage measures consistent with maximization of shareholder value.

Disparities in ESG reporting by emerging Chinese enterprises: evidence from a global financial center

PurposeThis study aims to examine the potential disparities in environmental, social and governance (ESG) reporting among emerging Chinese enterprises (ECEs). ECEs are subject to a set of internationally oriented ESG requirements imposed by the regulator of a global financial center that is exposed to diverse stakeholders. The authors also consider ECEs’ underlying institutional ownership, which exhibits influence over governance as a salient component of ESG.Design/methodology/approachThis study is based on a random sample of 500 ECEs listed on the Stock Exchange of Hong Kong (SEHK) – the global financial center of China. ESG reporting is measured by using the key performance indicators of the SEHK’s ESG Reporting Guide. The data are collected from annual reports that contain ESG disclosures or standalone ESG/sustainability reports published during the 2018–2019 fiscal year. The authors adopt binary logistic regressions and Chi-square tests to test the proposed hypotheses.FindingsThe authors find that ECEs’ heterogeneous institutional ownership and the extent of overseas development are associated with their disclosures on climate change. ECEs with international institutional ownership are found to be a significant factor for reporting aligned with the United Nations sustainable development goals (SDGs), using external assurance and stakeholder engagement, rather than state-owned enterprises (SOEs) and private companies. The authors also document that the presence of independent nonexecutive directors (INEDs) is significantly associated with reporting on meeting the SDGs and its use of external assurance, while the presence of female directors is a significant factor influencing disclosure emphasis on energy-saving initiatives.Practical implicationsThe authors provide an empirical study of ECEs beyond the focus on SOEs that are expected to produce comprehensive ESG reporting in addressing a broader international community of stakeholders apart from the regime of their home country. The authors document the pertinence of ECEs’ institutional ownership and governance diversity to ESG reporting. In particular, international stakeholders need to recognize such underlying differences among ECEs rather than viewing them as a homogeneous group.Social implicationsThe authors suggest that policymakers and practitioners in Asian countries consider increasing the presence of INEDs and gender diversity on ECE boards to enhance ESG reporting, which reinforces the findings of prior international studies suggesting such governance practices.Originality/valueThis study contributes to the existing body of knowledge about ESG reporting by documenting the underlying heterogeneity within ECEs, which are subject to a set of internationally oriented standards, as evidenced by their disparities in ESG reporting.

RETRACTED: Rising board gender diversity and incentives of female directors

As board gender diversity rises, it is important to understand the motivations of female independent directors. Focusing on the primary profession of female directors, we distinguish between promotion incentives of those who are senior executives of other firms (CorpFemales) and service/fee incentives of non-executive directors (OtherFemales). We find that OtherFemales hold more directorships and are more likely to miss board meetings. CorpFemales are more likely to serve on audit committees, which likely improves the reporting quality. CorpFemales, as opposed to OtherFemales exhibit higher M&A announcement returns and pay lower takeover premiums, especially when the choice of payment for acquisitions is equity.

The valuation impact of gender quotas in the boardroom: Evidence from the European markets

We investigate stock market reactions to the announcement of the new, June 2022 European Union (EU) regulation on board gender diversity, which requires firms to appoint a minimum of 33% female directors (or 40% female non-executive directors). We find that the abnormal market returns surrounding the EU announcement are positive. We also note that the observed positive valuation effects are particularly strong for: (1) firms in countries with softer existing regulations on board gender diversity; and (2) firms with a larger gap between current levels of board gender diversity and the 33% gender quota. Our analysis of the EU legislation on gender quotas offers solid evidence that board gender quotas are perceived by investors as beneficial, particularly for firms exposed to a large gender imbalance.

Applying Polynomial Regression Modeling to Highlight the Relation Between Corporate Governance Characteristics and Performance

The entities that carry out their activity in today's business environment, characterized to a great extent by uncertainty, are constantly facing new challenges. Whether they react to external stimuli or global pandemics, to new technologies or anticipate new trends, their ability to change or to be reactive or proactive is tested every day. In order to achieve performance and to ensure a sustainable development through an effective governance, the Corporate Governance Code provides support. In this context, the purpose of our research was to investigate the influence of corporate governance attributes on performance. Hence, the research question of our study aimed to determine the extent to which: (1) board size, (2) the number of non-executive directors, (3) CEO duality, (4) companies size, (5) gender diversity, (6) the existence of the audit committee, and (7) the qualified opinion expressed by the external auditor influenced firm performance measured through market capitalization indicator. We included in our study 102 entities, listed on two stock markets, namely Bucharest Stock Exchange (BSE) and ATHEX from two countries, namely Romania and Greece that registered in 2019 the highest growth from the European Union, taking into account the evolution of markets from 87 countries with available data. The econometric model developed in our study reflects the fact that non-executive directors, companies size and board sizes influenced performance measured through market capitalization indicator.

Advisory or monitoring role in ESG scenario: Which women directors are more influential in the Italian context?

AbstractBoard composition has received increasingly more attention from scholars as an important determinant of environmental, social and governance (ESG) performance. Two factors of board composition receive attention as they strongly relate to sustainability issues: gender diversity and board independence. The aim of this study is to test whether the presence of a critical mass of women in boardrooms correlates with firm ESG performance. In addition, we aim to study whether women receiving appointment as executive rather than nonexecutive directors may positively influence ESG performance. Using a sample of Italian companies listed on the Mercato Telematico Azionario during 2003–2019, the empirical results show that a critical mass of at least three female directors is necessary to improve ESG performance and that executive women directors represent a crucial component of board mechanisms, in terms of aligning the needs of stakeholders, since they increase ESG performance. Because the advising and monitoring functions impact firm value, we support the idea that female directors in strategic positions in the boardroom may benefit ESG performance. Thus, we support the idea of increasing women's presence on corporate boards and across executive leadership as a measure and a signal of how firms can respond to ESG challenges.

The impact of board gender diversity in reducing abnormal accruals

The purpose of this study is to examine whether board gender diversity reduces abnormal accruals. This study provides evidence from 2016 to 2020 of listed firms in developing Sub-Saharan African countries. Panel data analysis is carried out on the relationship between abnormal accruals and board gender diversity. Board gender diversity is composed of the proportion of female executive directors, female non-executive directors and total female directors. The findings show that abnormal accruals reduce in the presence of females on the board especially non-executive female directors. This supports the notion that female directors specifically the non-executive directors on the board exercise their independence through accounting conservatism, improved board governance and monitoring. This reduces information asymmetry which in turn curbs earnings manipulation in firms leading to improved quality of earnings. This study contributes to board gender diversity as a major factor in the improvement of financial reporting quality in developing capital markets. Eventually, this will have strong implications on policy, regulation and academia.

The effect of gender board diversity across market quotation on firm performance: Evidence from the UK

This paper examines the impact of gender board diversity on firm performance for companies registered on the London Stock Exchange (LSE). The data has been collected from a unique set of 644 financial companies in the Main (MAIN) market and Alternative Investment Market (AIM) for the period 1999–2016. The firm performance has been measured using return on equity (ROE) and Tobin’s Q. The main independent variable is the female board diversity, which was distinguished into executive and non-executive females. In the MAIN market, the executive female directors negatively affect the firm’s financial performance; however, the non-executive female directors positively impact the firm’s financial performance. Furthermore, the positive effect of non-executive female directors in the bad market is higher than in the good market. Whereas the negative effect of the executive female directors in the bad market is lower than in the good market. To the best of our knowledge, this paper contributes to the corporate governance literature in two folds. First, this paper explores the effect of executive and non-executive female directors on the board on the firm performance. Second, the paper also scrutinizes such associations in two different regimes of the financial market.

The independent non-executive director: Origins, regulation and persistent challenges

The premise that non-executive directors acting independently from management is essential to the integrity of the company board has driven much of the corporate governance agenda for decades. This is the case, despite conflicting empirical evidence of the value or contribution of independent non-executives. In addition, the exact meaning of ‘independence’ in the context of the corporate board remains opaque, and expectations regarding the role and remit of the office are far from settled. This article elaborates on some of these themes. The discussion will introduce the reader to the salient concepts and offer an overview of the most prominent discourse and recent developments with reference to approaches in the United States, the United Kingdom, the European Union and other jurisdictions. Ultimately, the paper contributes to the ongoing debate surrounding the efficacy of the independent non-executive director as a critical oversight mechanism in good corporate governance and the extent to which regulation can and should scaffold the office.

The risk of personal liability for money damages under the South African Companies Act, 2008 and the possible impact on nonexecutive directors

This article considers, critically, the risks associated with imposing personal liability for money damages under the South African Companies Act and the risks of willingness by non-executive directors to serve on the board of companies due to risks associated thereto. The article considers the legal position relating to liability as it is known under common law and as it was applied by the South African courts over the years. Further consideration is given to the legal positions of similar provisions in other jurisdictions practicing similar company law practices. The introduction of the provisions requiring imposition of monetary damages on directors in South Africa followed on a comparable practice globally, specifically, on those countries which share company law practices. However, it will be discussed what South African policymakers may possibly have not considered following the deliberations during the drafting stage – as was advised by the advisors who were appointed to carry out the drafting exercise. The impact of imposing money damages will be discussed and the use of other mechanisms to mitigate against the potential effect of the statutory provisions will be discussed. Through a detailed analysis of the rights associated with money damages, recommendations will be made on how to best deal with the effects of these provisions.

Non-Executive Directors Are a Waste of Time. They Often Have Little Involvement with the Company and Are not Aware of What Is Really Going On

Non-Executive Directors Are a Waste of Time. They Often Have Little Involvement with the Company and Are not Aware of What Is Really Going On

The effect of board characteristics and life cycle on corporate performance

This research investigates the effect of board characteristics and corporate life-cycle on the performance of listed firms in Ghana covering the period 2009–2018. The paper adopts the approach propounded by Dickinson (2011) to cater to proxy measures of firms’ life cycle stages. Using the pooled estimated generalized least squares (EGLS), the findings reveal that chief executive officer (CEO) tenure has a positive significant effect on performance. The presence of inside directors negatively and significantly influences performance. The results further indicate that at different levels of statistical significance, the various stages of the firm’s life cycle have a negative impact on the main dependent variable (ROA). With the alternative firm performance proxy (ROE), the results report that aside from the decline stage which negatively drives performance, the rest of the stages (i.e., introduction, growth, and maturity) have a positive influence on performance. However, only the growth and maturity stages exert a significant effect on performance. As part of the suggestions, the study proposes that firms should reduce the proportion of executive directors and appoint more non-executive directors to the board to boost performance. Also, firms should endeavor to increase investment in research and development at every stage of their production to ensure steady profit growth.

Impact of Institutional Investors and Board Independence on Corporate Short-Termism: Longitudinal Evidence from Zimbabwe

This study examines the effects of institutional investors and board independence on corporate short-termism, using panel data for 36 listed companies in Zimbabwe from 2010 to 2018. By using the Arellano-Bover/Blundell-Bond system Generalised Methods of Moments (Sys-GMM) dynamic estimator, this study effectively addresses autocorrelation, heteroscedasticity and endogeneity in panel data analysis. The empirical results of this study revealed that institutional investors significantly influence managers to make myopic investment decisions, whereas independent non-executive directors reduce managers’ myopic tendencies. Additional analyses of the results confirms that INEDs mitigate managers’ myopic behaviour, whereas institutional investors increase the managers’ myopic behaviour. More so, this study found a significant and positive relation between dedicated institutional ownership and capital expenditures, which suggests that dedicated institutional investors help to reduce short-termism. Given that the results show that past short-termism begets more short-termism, the results of this study can help shareholders, policymakers, regulators and executives to understand the influence of institutional investors and board independence on long-term corporate investment decisions, which is an unexplored issue from the Zimbabwean context.

Corporate Governance Mechanisms and Shareholders’ Earnings: The Nigerian Experience

In Nigeria, the shareholders' earnings within deposit money banks, when compared to those in developed and emerging economies, can be considered low and could be attributed to the high records of corporate governance scandals among the banks. The paper examined corporate governance mechanisms on shareholders’ earnings (economic value added and earnings per share) from 2006-2021. The sample comprised thirteen deposit money banks selected along their market capitalization in December 2021. Panel regression analysis revealed that corporate governance mechanisms had individual positive but insignificant effect on economic value added of the deposit money banks in Nigeria (Adj. R2 = 0.0120, (F (4, 162) = 1.50, p > 0.05). Also that the proxies of corporate governance mechanisms showed significant effect on earnings per share. Thus, deposit money banks should strengthen their board of directors by along risk committee, independent non-executive directors and diversity to ensure effective participation with inclusive decision-making.

INSTITUTIONAL GOVERNANCE AND FINANCIAL PERFORMANCE IN NIGERIA’S NATIONAL MICROFINANCE BANKS

This study examines the effect of institutional governance on the financial performance of National Microfinance Banks (NMFBs) inNigeria for the period 2016 to 2021. Institutional governance was proxy by Board characteristics such as board size, board independence, board gender diversity, and audit committee size while financial performance was measured by the returns on assets (ROA). The study adopts a descriptive research design while panel multiple regression was used to test the hypotheses of the study. The study found that board size and board gender diversity have significant negative effects on financial performance while board independence and audit committee size have significant positive effects on the financial performance of the sampled banks. From the findings, the study concludes that institutional governance variables have a significant effect on the financial performance of the NMFBs in Nigeria. It is recommended that NMFBs should have a board with at least six non-executive directors to guarantee board independence. The study also recommends that an audit committee size of at least four will help to enhance the financial performance of the NMFBs.

MONITORING CHARACTERISTICS AND FINANCIAL REPORTING QUALITY OF NIGERIAN LISTED CONSUMER GOODS FIRMS

The study examines the effect of monitoring characteristics on the financial reporting quality of Nigerian listed consumer goods firms for the period of nine years from 2011-2020. The population of the study consists of all the 21 listed consumer goods firms as at 31st December. Multiple regression technique was employed as technique of data analysis. The findings of the study reveals that all the monitoring characteristics variables used in this study significantly affect the financial reporting quality of Nigerian listed consumer goods firms. It is therefore recommended among others that, companies board in Nigerian consumer goods should be composed in such a way that the representation of non-executive directors should be minimal as it was found, encourage earnings management, hence reducing financial reporting quality. In addition, the representation by independent directors should increase from one to two members and that the chairmen of the board should be independent directors.

EFFECT OF CORPORATE GOVERNANCE ON ASSET QUALITY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

This study examined effect of corporate governance on asset quality of listed deposit money banks in Nigeria. The specific objectives of the study were to investigate effect of board independence on asset quality of deposit money banks in Nigeria, examine effect of board audit committee financial expertise on asset quality of deposit money banks in Nigeria and evaluate effect of board ownership concentration on asset quality of deposit money banks in Nigeria. The longitudinal research design was adopted in the study. Data were collected for the period 2012 to 2019 from financial statements of 14 listed deposit money banks and analyzed using the random effects regression after conducting descriptive statistics, Pearson correlations, heteroskedasticity and Hausman specification tests. Findings reveal that while board independence had significant effect on asset quality, board audit committee financial expertise and board ownership concentration had insignificant effects on asset quality of quoted deposit money banks in Nigeria for the period under study. It was recommended that deposit money banks equalize the number of executive and non-executive directors on their boards in order to increase the assets quality. Thus both executive and non-executive directors who have experience and are knowledgeable in accounting and finance in their boards to increase their assets quality, and encourage high block holding in their firms to enhance the assets quality.

Challenge in the boardroom: Director–manager question‐and‐answer interactions at board meetings

AbstractResearch question/issueCorporate governance codes of practice require non‐executive directors (NEDs) to challenge and question managers. Prior literature and best practice guidance remain silent on the precise meaning of, and on how directors might execute, “challenge”, and how management might respond. We explore the ways in which NEDs challenge, question, and dissent during board meetings, and how managers respond. We observe, audio‐record, and video‐record three boards during nine board meetings. Our boards are unique in holding part of their meetings in public and part in private.Research findings/insightsOur dataset comprises 418 questions and 510 answers. We develop a typology of NEDs' challenge/questions comprising six categories/48 subcategories and managers' responses/answers comprising eight categories/69 subcategories. Our findings support the assertion that NEDs may be reluctant to offer moderate (i.e., constructive) challenge in public. We find significant differences between the level of dissent and the types of answers offered in public versus in private. We find an association between the type of question asked and the type of answer provided. Who asks and answers questions varies significantly in public versus in private, as do the questions and answers by each board.Theoretical/academic implicationsOur empirical findings suggest board behavior varies in the presence of an audience of stakeholders. In public, boards go through the motions by engaging in the performativity of governance, while more substantive governance occurs in private.Practitioner/policy implicationsWe show that regulatory calls for robust challenge by NEDs have not been met, at least judging by the three boards in our study. There is a lack of guidance and advice on how NEDs should exercise challenge and how managers might respond.