Number Of Independent Directors Research Articles

The effect of MD&A disclosures on corporate performance: a panel quantile regression analysis

PurposeThe study aims to examine how the information disclosed by the managers in the management discussion and analysis (MD&A) reports varies at the different levels of corporate performance.Design/methodology/approachTo understand this quantile effect, first OLS technique was adopted and then, the quantile regression method was applied to explore the impact of MD&A disclosures on the firm performance across the lower and upper quantiles. The sample size for the study is 490 firms’ year observations for the period 2016–2022.FindingsThe results of the study demonstrate the negative but significant relationship between MD&A disclosures and corporate performance, supporting the two management strategies of “competitive disadvantage” in case of good performance and “management impression strategy” in case of poor performance. Furthermore, with other corporate governance variables, both the size of the board and the number of independent directors on the board are positively significant only in the case of the upper quantile indicating the heterogeneity in the relationship between the performance and the MD&A disclosures. Therefore, the overall findings of the study support that these results contradict the agency theory and the stakeholders’ theory as managers are not acting well as agents on behalf of the investors and work well only when they are controlled by the large board having more independent directors.Originality/valueTo the best of the authors’ knowledge, no study so far has incorporated quantile regression to assess the effect of MD&A disclosures on company performance at various levels of the firm performance, which gives more robust insights about the viewpoint of the managers on the different level of the firm performance. In other words, this study highlights the important information as to how the information provided in the MD&A reports varies as per the good or poor performance of the companies.

Does Promoter Ownership Affect Dividend Policy? An Agency Problem Perspective

In this paper, we show a nonlinear relation between promoter ownership and dividends in the Indian context, that is, promoters pay more dividends at lower level of their ownership while they pay lesser dividends when their ownership increases beyond a threshold. In particular, we find that the adverse impact of promoter ownership on dividends is greater only at higher level of ownership, where promoters become entrenched with their effective control, and outsiders face the greatest risk of expropriation. We contend that agency and information asymmetry problems are the factors driving our results. We establish this by showing that the nonlinear relation between promoter ownership and dividend payment is more pronounced for standalone firms than group affiliated firms, for firms with more free cash flows and for firms with smaller board and less number of independent directors in the board. Our results are robust to endogeneity concerns and testing the dividend payment decision (to pay or not to pay) using the binary choice logit model.

Does ownership influence ESG disclosure scores?

The present article investigates whether the different ownership structures in the non-finance sector impact the Environmental, Social, and Governance scores (ESG). Panel data regression has been used for analyzing the publicly listed 500 listed companies on National Stock Exchange (NSE), India, excluding the banking and financial services sector from 2015 to 2020. The variables used are size, age, leverage, cost of debt, number of independent directors, number of women on board, market capitalization, interest coverage ratio, Government Ownership, and Private Ownership. Results reflected that government ownership had a positive and significant impact on the ESG scores of the companies, whereas there is an insignificant relationship with privately-owned companies. The study will be helpful for academicians to gain insight into the relationship between ownership structures and ESG scores.

An Optimal Proportion for Independent Directors in the Boardroom: An Empirical Study

The purpose of the article is threefold: (a) to analyze the causality between board independence and performance of the firm, (b) to examine the impact of board independence on financial performance, and (c) to ascertain whether the legislation of at least 50% of independent directors (IDs) influences the performance of the firm. We have employed a panel data framework for a sample of 442 Indian companies from 2013 to 2019. The estimation analysis has been conducted using panel Granger causality test, fixed effects method, and system generalized methods of moments. We further test whether the relationship differs across two categories of companies: one having IDs up to 50% and more; and second, the proportion is less than 50%. The results of our dynamic panel data analysis indicate that the ratio of IDs is found to have a positive association with the firm performance. Further, we found that firms with more than 50% IDs have a significantly higher firm performance than firms having less than 50% IDs. There should be an adequate ratio of independent members on board to avail benefits from their independent judgments without intervention in the ordinary course of business. It could be used as a preliminary study by the policymakers and regulatory authorities to set additional standards for the number and proportion of IDs.

Research on the Effectiveness of The System of Independent Directors of Listed Companies in China

This paper selects the financial data of Chinese A-share listed companies from 2010 to 2020 as the research sample, and empirically tests the negative impact of the number of independent directors and their ratio on financial fraud behavior from the perspective of corporate financial fraud.The research results find that the number of independent directors and the ratio of independent directors are significantly and positively correlated with corporate financial fraud behavior, which indicates that independent directors have a significant impact on The results found that the number of independent directors and the proportion of independent directors are significantly and positively correlated with the financial fraud behavior of enterprises, indicating that the independent directors did not effectively promote the current corporate management reform.

Corporate Philanthropy and CEO Outside Directorships Under Authoritarian Capitalism

Scholars have long suggested that CEOs can benefit from corporate philanthropy. However, little is known about this relationship in contexts of authoritarian capitalism such as China, where the state not only uses its control of economic entities to pursue social goals but also plays a key role in CEOs’ careers. We theorize how corporate philanthropy among state-controlled firms increases the CEO’s likelihood of receiving career benefits from the state in the form of outside directorships. Outside directorships represent an important form of social capital in the Chinese context, and corporate philanthropy is an important mechanism through which social capital can be acquired. In addition, we theorize how two factors—the degree of state ownership and the number of independent directors on the CEO’s board—moderate this relationship. Analyzing a 12-year panel of state-controlled, publicly-listed firms in China comprising 6,594 firm-year observations, we find general support for our ideas. In so doing, we contribute to scholarship on the business–society relationship and corporate governance in the context of authoritarian capitalism.

Board diversity: Moderating effects of CEO overconfidence on firm financing decisions

The importance of CEO overconfidence in capital structure decision-making has drawn attention of many scholars in the past. Despite this, literature on the subject to-date does not offer consensus on how CEO overconfidence biases interact with corporate governance in determining company strategies for financing its capital investments. Our paper aims to address a specific gap in the literature concerning the potentially moderating role of board diversification on the CEO overconfidence and its impact on corporate capital structure decision-making. In a major innovation to the literature, we look at board diversity from five perspectives: gender and age diversity, board independence, board size, and the duality of the roles of CEO and chairperson. To make our findings methodologically robust, we consider two measures of the CEOs’ overconfidence: media-based measure (implied measure of overconfidence) and CEO stock purchases (revealed measure of overconfidence). We extend our analysis to the top 100 US listed companies over 2011–2019 — the period between two systemic crises, the Great Recession and the Covid19 pandemic. We show that general effect of board diversity on CEO overconfidence is highly sensitive to different measures of overconfidence. CEOs’ implied overconfidence has a negative correlation with debt financing of the company, which is consistent with the findings of Heaton (2002). These results do not hold for the revealed measure of CEO overconfidence. Board diversity plays an important role in moderating the impact of CEO overconfidence on capital structure decisions. This holds for gender diversity, and for the board size and the number of independent directors, confirming prior literature on the subject. However, age diversity of the board and the duality of the CEO and chairperson are insignificant in moderating CEO overconfidence, which adds new insights to the literature to-date.

Shareholder litigation and bank risk

Does a decrease in shareholder litigation enhance managers’ monitoring efforts by ensuring adequate firm risk management? We explore how state universal demand (UD) laws (which limit shareholder litigation as a mechanism to discipline managers), affect bank holding companies’ (BHCs) risk. Using a difference-in-differences analysis, we show that BHCs reduce their tail risk exposures after the implementation of UD laws, which is achieved by improving loan asset quality. Indeed, BHCs appear to apply stricter contract terms for syndicate loans to risky and opaque borrowers. We also show that UD law implementation leads to changes in BHC board composition by increasing the proportion of outside directors, the number of independent directors in audit committees and the number of independent directors with financial expertise.

A Game of Checks and Balances: When Celebrity Director Meets Celebrity CEO

Previous findings on the relationship between celebrity CEO and risk-taking present a double-edged sword effect. Synthesizing agency theory and resource dependence theory, we hypothesize that the relationship may depend on celebrity directors. Further, we hypothesize that CEO duality would allow further enhancement of the moderating effect of celebrity directors in the relationship between celebrity CEO and risk-taking. Conversely, we hypothesize that an increase in the number of independent directors will weaken the moderating effect of celebrity directors in the relationship between celebrity CEO and risk-taking. Based on the sample of S&P 1500 companies between 2010 to 2016, our empirical analysis shows that the relationship between celebrity CEO and risk-taking is contingent on celebrity directors. Moreover, the moderating effect of celebrity directors depends on CEO duality and board independence. We conclude with a discussion and implications for theory and research.

DAMPAK TATA KELOLA PERUSAHAAN TERHADAP KINERJA LEMBAGA PERBANKAN DI INDONESIA

Corporate governance is an important aspect in the company. The impact and implementation of corporate governance has become interesting for various companies because it substantially controls the management of institutions. This study analyzes the impact of elements of corporate governance (CG) which includes the composition of the board on the performance of banking institutions listed on the Indonesia Stock Exchange (IDX). The research population involved 25 banking institutions which are commercial banks in Indonesia. The data taken has a span of 4 years (2017, 2018, 2019, and 2020). Spearman correlation is used to identify the relationship between corporate governance and banking financial performance. The results of this study indicate that there is a positive relationship or correlation between the number of board personnel and the financial performance of commercial banks. The number of independent directors has a positive significant relationship with ROA, ROE and EPS, job duality has a positive significant relationship with ROA and EPS, and board meetings have no significant relationship with financial performance.

Understanding the Corporate Governance Score: Are Some Components of Corporate Governance Overrated? Evidence from a Developing Country

The corporate governance structure of companies has been subjected to intense examination in recent time due mainly to recent corporate collapses and other financial mis-conduct by management. The benefits of an effective corporate governance structure are well documented, ranging from reduce cost of capital to improved transparency in ethics, morality and financial disclosure. Evaluating the effectiveness of a company’s corporate governance structure normally involves the use of a corporate governance score.  This study investigates the appropriateness of some of the more commonly used components in compiling the corporate governance score. The study found that the presence of both an audit committee and a compensation committee along with effect of CEO duality had significant statistical effect on the corporate governance score. However, the results also showed that the size of the board and the number of independent directors were not statistically significant components of the corporate governance score. 

The Impact of Corporate Governance on the Capital Structure of Domestic Companies

The choice of the optimal capital structure is one of the biggest challenges that the company’s top management faces due to the fact that the right strategy secures the company’s financial stability, sustainable development and capital-raising potential. This study aims at establishing a connection between the capital structure of Russian companies and corporate governance. Literature background of the paper consists of foreign and Russian authors’ works in the field of behavioral finance. Observations from 60 Russian companies were employed in the study. The major findings obtained by economic and mathematical modeling are as follows: 1. positive connection was established between the size of board of directors, number of independent directors and debt in capital structure; 2. positive connection between CEO’s age and short-term debt in capital structure; 3. no correlation between gender of directors and debt. The findings of this study may be used for determining the optimal capital structure strategy. Moreover, this information may be taken into account by top-management, directors, etc. for internal valuation of a company’s operations including sound valuation of the corporate governance factors that influenced the company’s capital structure.

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.

Principles of Corporate Governance of State-Owned Enterprises and its compliance in India

The article deals with the key points of the Guidelines on Corporate Governance for Central Public Sector Enterprises of India concerning the composition of a board of directors, audit, nominating and remuneration committees, subsidiaries. The author analyzes the level of compliance with these principles of 338 public sector enterprises, of which 255 were assessed by the Department of Public Enterprises and received grades from «poor» to «excellent». The article also discusses external and internal factors that may affect the level of compliance with the guidelines on corporate governance. Thus, the external factors include a big size of a company, experience, absence of major debt. The internal factors include reduction in a proportion of the State ownership, memorandums of understanding and the «ratna»-statuses. The last two factors were paid particular attention. The author concludes that the main obstacles to achieving desirable quality of corporate governance in the Indian central public sector enterprises are: (a) absence of ownership policy in public sector companies, defining the role and duties of the State as a shareholder, (b) accountability of public sector companies to many public authorities at the same time that almost negate corporate governance in its general understood sense, (c) the lack of operational and financial autonomy of a board of directors, (d) non-compliance with the number of independent directors and non-compliance with the requirements of the legislation and principle of corporate governance.

Impact of corporate governance on performance second tier banks

Every year in the Republic of Kazakhstan the number of second-tier banks is decreasing. News portals quarterly publish information about the revocation of a banking license from a particular bank. The post-COVID situation in the country has shown that not every second-tier bank will stay afloat. It also shows that it is important to have an effective corporate governance system. Corporate governance directly affects the financial performance of the organization. Respectively, it is a necessary condition for the successful operation of the Bank and ensuring its competitiveness in the market.The purpose of the article is to show the impact of corporate governance on the main financial indicators of the bank on the basis of a comprehensive review and analysis of corporate governance in large second-tier banks of the Republic of Kazakhstan, to determine the essence of corporate governance, features, and principles of corporate governance and management methods in large second-tier banks.The article considers the classification of committees of the Board of Directors, and the structure of the Board of Directors of large banks in Kazakhstan. The article provides the number of independent directors, and age information.

The board effectiveness index and stock price crash risk

PurposeThe main purpose of this study is to use a new broad board effectiveness index, which has been created from several internal attributes of board of directors and to investigate the association of the overall index regarding stock price crash risk.Design/methodology/approachThe authors create a new board effectiveness index from a comprehensive set of board attributes, including the number of board meetings, the number of board attendances, the expertise of the directors, the size of the board and the number of independent directors, in order to test with the stock price crash risk by using panel regression models with fixed effects. The two-stage least squared regression ensures endogeneity issues.FindingsAn increase in board effectiveness index lowers firm-specific crash risk. Moreover, female directors enhance the board effectiveness.Originality/valueWith a new broad board effectiveness index, this paper is unique from other studies as the authors focus on the overall index rather than on a single dimension of board attributes.

The cubic S-curve relationship between board independence and intellectual capital efficiency: does firm size matter?

PurposeFirst, this study assesses firms’ efficiency of transforming intellectual capital (IC) components into firm performance. Second, this study examines (1) cubic S-curve relationship between board independence and IC efficiency and (2) how firm size moderates the cubic S-curve relationship.Design/methodology/approachThis study employs a stochastic nonparametric envelopment of data (StoNED) framework to estimate IC efficiency, which is derived from the estimation process of transforming structural, relational and human capitals into accounting- and market-based performance indicators. This study conducts regression analyses on 1,104 firm-year observations of Taiwanese semiconductor firms over the period of 2011–2018.FindingsStoNED results suggest that sample firms' IC efficiency can be relatively improved by approximately 80%. Regression results indicate that a cubic S-curve relationship between board independence and IC efficiency exists, and firm size moderates the nonlinear effects.Practical implicationsOverall, this study highlights the importance of examining the nonlinear effect of board independence on IC efficiency from the perspective of agency theory, and the moderating effect from firm size, which may suggest availability of resources from the resource-based view of the firm.Originality/valueThis study contributes to the literature through the innovative application of an efficiency-based tool for evaluating IC efficiency. The cubic S-curve relationship between board independence and IC efficiency also points to the policy concerning the appropriate number of independent directors on board.

The Impact of Applying Corporate Governance Rules on Companies Going Concern - Applied Study on Jordanian Public Shareholding Industrial companies listed on the Amman Stock Exchange

This study aimed to examine the effect of applying corporate governance rules on going concern of 51 Jordanian Public Shareholding Industrial companies listed on the Amman Stock Exchange. The data were collected through the annual reports of these companies over the period 2011-2016 (Time Series Data). The research methodology employed content analysis of annual reports, Stepwise Multiple Regression and descriptive statistics. The findings of this study provide evidence of a positive association between corporate governance (Number of Independent Directors, Board Size, CEO Duality, and Ownership Concentration) and going concern of Jordanian Public Shareholding Industrial companies. In the same aspect the study revealed that there is positive association between corporate governance and both of return on assets and net cash flow from operating activities as indicators for going concern. The study recommends that companies should enact a standard pertaining going concern and financial forecasting. Thus, companies can take the necessary precautions to avoid financial failure that affect going concern negatively

The Impact of Applying Corporate Governance Rules on Companies Going Concern - Applied Study on Jordanian Public Shareholding Industrial companies listed on the Amman Stock Exchange

This study aimed to examine the effect of applying corporate governance rules on going concern of 51 Jordanian Public Shareholding Industrial companies listed on the Amman Stock Exchange. The data were collected through the annual reports of these companies over the period 2011-2016 (Time Series Data). The research methodology employed content analysis of annual reports, Stepwise Multiple Regression and descriptive statistics. The findings of this study provide evidence of a positive association between corporate governance (Number of Independent Directors, Board Size, CEO Duality, and Ownership Concentration) and going concern of Jordanian Public Shareholding Industrial companies. In the same aspect the study revealed that there is positive association between corporate governance and both of return on assets and net cash flow from operating activities as indicators for going concern. The study recommends that companies should enact a standard pertaining going concern and financial forecasting. Thus, companies can take the necessary precautions to avoid financial failure that affect going concern negatively

The impact of structure and flux of corporate boards on organizational performance: A perspective from the information technology industry

Corporate governance mechanisms in the Information Technology (IT) industry are viewed as pivotal for the success of IT organizations. While corporate governance, particularly in terms of board characteristics, has been extensively studied in other disciplines, it has not received as much attention in the Information Systems discipline. This study investigates the effects of board structure and its changes (i.e., board flux) on organizational performance. Results show that board size, gender diversity, and board age have curvilinear effects while board independence has a positive effect and board flux has a negative impact on performance. However, the negative relationship between board flux and performance was weaker for firms with a higher, as compared with those with fewer, number of independent directors. In addition to making a useful contribution to the sparse literature on the role of corporate governance in IT organizations, our study has strong implications for research and practice.