Presence Of Independent Directors Research Articles

Board Diversity and Firm Value: Evidence From Nepalese Financial Institutions

The purpose of this paper is to provide empirical evidence on the relationship of board diversity of corporate board with the value of financial institutions in Nepal. The sample comprises 38 financial institutions listed in NEPSE with 380 firm-years observation for the period 2011/12 to 2020/21. Balance panel datasets were employed to investigate using multiple regression models to examine the relationship between board diversity (female and minority directors) and firm value measured by Tobin's Q and MBR. The result shows a significant positive relationship between firm value and the presence of both female and minority directors. Moreover, the evidence supports that the presence of female directors in the boardroom effect more in the firm market value than as compare to the minority directors. Furthermore, the study concludes that control variables like board size, presence of independent director and firm size have positive significant effect on firm value, but leverage has significant but negative relation with the firm market value of financial intuitions in Nepal. The study result has the practical implication for government, policy makers and regulating authorities in formation of diverse board that can increase the firm value and performance. It also provides additional insight to the corporate governance literature and helps to fill the gap on board diversity and firm value in Nepalese financial institutions.

Antecedents of Independent Directors on Joint Venture Boards

The presence of independent directors on corporate boards is often seen as an important means of monitoring to address principal-agent problems and of providing external resources and advice to management. In joint ventures (JVs), however, shareholder-management frictions can be lessened by appointing insiders to management and board positions, whereas access to valuable expertise, resources, and networks are provided by the partners themselves. A natural question, then, is why and when do partners appoint independent directors to JV boards? We argue that the appointment of independent directors to joint venture boards is primarily driven by principal-principal conflict considerations, which are unique in the joint venture context compared with conventional widely held corporations. Consistent with this argument, we find that the likelihood of appointing independent directors increases when JVs face more exchange hazards due to the competitive overlap between partners and the broader functional scope of the JV. However, given that JVs also have alternative governance mechanisms to mitigate shareholder conflicts, we also find that more complex contractual agreements can potentially substitute for independent directors on JV boards. Although relational governance is often highlighted as a key facet of JV governance, we do not find such a substitution effect for this supporting governance mechanism. Overall, our research therefore highlights several interesting domain translation issues when applying existing corporate governance insights to the joint venture setting. Our paper concludes with a call for future research on independent directors serving on JV boards, as JVs represent an organizational form that has been neglected in corporate governance research.

Intellectual capital and financial performance: does board size and independent directors matter? An empirical enquiry

Purpose Intellectual capital (IC) is a paramount resource for competitiveness in the knowledge-based financial sectors of the economy. As financial technology advances, specifically in the banking industry, it is vital to understand the effect of IC on financial performance. This study aims to investigate the effect of IC on return on equity (ROE), with a unique emphasis on the moderating role of board attributes. Previous studies have overlooked this moderating role. Design/methodology/approach The study sample consists of 17 banks and a panel data set spanning 2016–2021, extracted from annual reports. Antel Pulic’s value-added intellectual coefficient (VAIC) model is used to compute IC. To analyze the data, a generalized least squares analysis is conducted. The robustness of the analysis is ensured by using the two-stage least squares (2SLS) econometric technique. Findings The findings indicate that both the VAIC and human capital efficiency (HCE) have a significant impact on the ROE of banks. In terms of moderation, it is observed that board size (BS) exerts a negative effect on the association between VAIC, HCE, structural capital efficiency and ROE. Additionally, BS positively compounds the connection between capital employed efficiency and ROE. Similarly, the presence of independent directors (IND) significantly moderates the effects of VAIC and its components on the ROE of banks in Pakistan. Practical implications Banks should focus on the HCE for a higher ROE. Moreover, banks ought to prioritize appointing more independent directors in the boardroom for effective utilization of IC and greater ROE. Originality/value The findings of the study, which analyzed data from Pakistan’s banking sector, are original and provide additional insights into the literature on IC and board attributes.

Corporate Governance and Banking Stability in the MENA Region

This study investigates the determinants of banking stability through a comprehensive analysis of various financial and governance factors. Employing a panel regression approach, we examine the impact of key accounting variables, including capital adequacy ratio, return on assets, non-performing loans, bank size, and gross domestic product, as well as governance factors, covering board composition, audit quality, women on board, and the presence of risk committees, on the stability of banks operating in the MENA region between 2009 and 2020. Our findings reveal that most of these variables have a positive impact on banking stability. However, non-performing loans and the presence of independent directors on the board exhibit a negative relationship with banking stability. Therefore, it is found that banks under consideration maintain stability in tandem with good corporate governance practices and economic expansion, thereby positively influencing the MENA banking sector. The study recommends researchers to delve deeper into the complex relationships between these variables and banking stability and suggests that future studies explore additional factors that might impact the stability of banks in the MENA region.

Examining the Moderating Effect of Board Independence on Ownership Structure and Corporate Risk: A Case Study of Nairobi Securities Exchange

Corporate governance and the risk management are the integral components of modern business management. This research paper aimed at investigating how and whether the presence of independent directors on the board influences the relationship between ownership structure and corporate risk. The composition and independence of a company's board of directors play a crucial role in determining the level of corporate risk. This research delved into the intricate dynamics between these elements to understand how they influence corporate risk. Specifically, the research aimed to examine how board independence acts as a moderating factor on the relationship between ownership structure and corporate risk. By examining the Kenyan context, this study contributes to the broader understanding of corporate governance in emerging markets. The paper relied on Agency Theory, Mean Variance-Portfolio Theoryagency theory ,mean variance-portfolio theory, the stewardship theory and resource dependence theory (RDT). The research employed use of causal research design. The study population was sixty-four (64) firms listed at Nairobi Securities Exchange as at 31st December 2021. Secondary data sources included financial reports, annual reports, and surveys. Data analysis was conducted using quantitative techniques like mean, standard deviation and regression, with the help of statistical software STATA. The statistical results revealed significant moderating effect of board independence on the relationship between ownership structure and corporate risk. The findings have offered practical insights to corporate managers, investors, policymakers, and researchers, aiding them in making informed decisions and formulating effective governance and risk management strategies.

Insurer’s Risk-Taking Behavior in India: Does Board Matter?

This study investigates the board’s role in shaping insurers’ risk-taking using data of 49 Indian insurance firms from 2014 to 2021. We captured the insurer’s risk using four proxy measures: underwriting, investment, insolvency and total risks. To address potential endogeneity concerns in the relationship with board attributes, we employ a two-step Generalized Method of Moments (GMM) approach. Robustness checks are conducted using the panel quantile estimation approach. The empirical analysis reveals that life insurers face greater underwriting risk than non-life insurers. A larger board with duality appears to mitigate insurers’ risk, particularly in the case of life insurers. The presence of independent directors on insurer boards, along with an optimal frequency of board meetings, effectively mitigates risk among Indian insurers. The study concludes that dual regulations erode regulatory discipline among public insurers, leading to an inadequate governance structure.

Corporate Governance Effects on Bank Profits in Gulf Cooperation Council Countries during the Pandemic

During the COVID-19 lockdown, the typical bank in the Middle East lost liquidity due to deposit drains and experienced increases in nonperforming loans. The loss of liquidity was a supply shock, while the increase in nonperforming loans was a demand shock. Corporate governance increases the board’s oversight of top management’s implementation of strategies to reduce these shocks. Two corporate governance measures include a political concentration in the ownership and the presence of independent directors on the board of directors. Politically connected shareholders can ensure the continuous flow of deposits through their access to large depositors, thereby reducing supply shocks. Supply shocks may also be overcome by the large deposit balances from oil wealth. Independent directors are not employees of the banks on whose boards they serve, thereby providing objective evaluations of management’s performance. Managers who are evaluated by independent directors can reduce nonperforming loans by strictly evaluating the creditworthiness of borrowers and providing incentives for timely repayment. Thus, demand shocks may be overcome by the scrutiny of management by independent directors. These conditions prevail in the Gulf Cooperation Council (GCC countries). Using a sample of 326 GCC banks, we perform OLS regressions followed by two-stage least squares and GMM estimator robustness checks of ownership’s political concentration, independent directors, bank size, and bank liquidity on returns on assets and equity. Ownership political concentration, independent directors, bank size, and liquidity ratio significantly explained the return on assets and on equity. We conclude that large shareholders use political connections to cope with crises and that large banks are able to make new loans due to liquidity from large reserves. Independent directors evaluate management performance objectively, thereby requiring that management reduce nonperforming loans. We close research gaps of bank performance in GCC countries, as opposed to the entire MENA region, the latter being the focus of the literature. The significance of this paper is that it demonstrates the ability of banks to employ corporate governance to cope with crises. This is an original approach, as it seeks the outcome of a positive signal on bank performance of the reduction in the supply shock through ownership political concentration and reduction in the demand shock by independent directors. As corporate governance variables mitigate both shocks, corporate governance may assist banks in coping with liquidity crises.

Nexus between Financial Leverage and Board Independence of Public-Listed Firms: Is There Any Stylised Fact?

Introduction/Main Objectives: This paper examines the relationship between financial leverage and board independence for firms listed on the Malaysian stock exchange. Research Methods: This research is conducted using sample of 265 non-financial firms listed on Bursa Malaysia from 2014 to 2018. Finding/Results: Our results show: first, board independence is essential in reducing firm leverage. However, board independence does not affect all firms equally. In particular, board independence has insignificant influences on the financial leverage of young or small firms. In contrast, the financial leverage of old or large firms is negatively associated with board independence. Second, the financial leverage of firms with low profitability is adversely affected by the presence of independent directors. However, the negative impact diminishes as the firms' profitability increases. Conclusion: These results indicate the importance of having independent directors for old, large, or low-profitability firms to reduce their financial leverage. These findings contribute to the stylised facts of the nexus between financial leverage and board independence.

Corporate Governance Procedures and Nigerian listed Companies' Productivity

The study examined the relationships between labour productivity and corporate governance procedures publicly traded firms in Nigerian using a sample of 1376 firm-year observations during1989-2020. The research employed a panel data technique to find the relationship between the dependent and independent variables. The Hausman test findings show that the Fixed Effect is the best estimator due to the differences between firms. Three predictor factors: board size, block holding, and company size have a positive and substantial relationship with the labour productivity of listed firms in Nigeria, according to the results of the panel regression analysis. However, directors' shareholding, board independence, and an independent audit committee are not significantly correlated with labour productivity of Nigerian publicly traded companies. Only leverage has a negative association with the dependent variable. The study showed that an ideal board size is one where increasing board size benefits Nigerian enterprises' production while doing so at a decreasing rate; as a result, the relationship between the two variables is quadratic. Growth in firm size and institutional investors also enhance dependent variable. On the other hand, more borrowing lowers productivity. However, the directors' shareholding, the presence of independent directors, or the independence of the audit committee is indifferent to labour productivity. This work contributes to the corpus of knowledge by expanding the study's time period from the normal ten years covered by other studies to thirty-four years. Additionally the use of labour productivity as a performance metric is unusual among experts of developing nations, including Nigeria.

CEO confidence and firm performance: exploring the moderating role of board independence

PurposeBased on Upper Echelon Theory, the present study is an endeavor to assess the relationship between Chief Executive Officer (CEO) confidence and the performance of a firm. This study also investigates the moderating role of board independence in this context.Design/methodology/approachThis work is based on a sample of 500 S&P-indexed Indian firms listed on the Bombay Stock Exchange over a time span of 12 years, i.e. from 2010 to 2021. Panel regression models are employed on a final sample of 3,780 firm-year observations to examine the aforesaid relationship.FindingsThe empirical findings of the study support the positive association between CEO confidence and firm performance as highly confident (overconfident) CEOs tend to make quick and intuitive decisions, alleviate the firm's underinvestment problem, and have a higher propensity to boost the overall firm performance. Moreover, the results reveal that the presence of independent directors (IDs) negatively moderates this relationship and reduces the positive impacts of CEO overconfidence as IDs lack the required knowledge of the business. IDs themselves tend to assume the imperative position and reject the CEO's proposals, thereby negatively impacting the firm performance in the long run.Originality/valueThe current study provides significant novel insights into the finance and strategic management literature that overconfidence bias among CEOs can be a desirable managerial trait for shareholders to boost the long-term performance of the firm. The study also extends to the corporate governance literature by providing empirical evidence of IDs reducing the potential beneficial effects of CEO overconfidence and that subsequently decreases the firm performance.

The Antecedents of Corporate Sustainability Performance: A Study on Generic and Sustainability-Related Corporate Governance Mechanisms

This study aims to investigate the antecedents of corporate sustainability performance, focusing on corporate governance mechanisms. The growing diffusion of sustainability-related corporate governance regulation raises a legitimate question about the effectiveness of these mechanisms in fostering sustainability performance. While extant research has separately taken into consideration different mechanisms related to corporate governance and sustainability, in this study, we investigate the combined effect of generic governance mechanisms, such as board size and board independence, and sustainability-related governance mechanisms, such as the presence of a sustainability committee and sustainability targets in executives’ compensation schemes, on corporate sustainability performance. Based on a dataset of 185 companies listed in the most important European markets, our results indicate that both generic and sustainability-related governance mechanisms enhance corporate sustainability performance. More specifically, the presence of independent directors and the inclusion of quantitative sustainability targets in executives’ compensation schemes contribute to corporate sustainability performance.

Independent directors and firm innovation: the moderating role of gender and nationality diversity

PurposeAlthough the literature on corporate governance and firm innovation finds that board independence is important, this paper proposes that the presence of independent directors alone is not enough to explain their impact on firm innovation. This study analyses if diversity among independent directors may affect the relationship between board independence and firm innovation.Design/methodology/approachA panel data on a sample of 124 Spanish listed companies for the period 2008–2019 used to test the hypotheses.FindingsResults suggest that independent directors have a negative effect on firm innovation, measured as number of patents, but when there are high levels of gender and nationality diversity among such directors, this negative effect may be mitigated.Originality/valueConsidering that firm innovation is a complex process associated with decision-making and that board independence itself may be not enough, this study goes a step further and delves deeper into the characteristics of independent directors. As far as is known, this paper is the first theoretical and empirical study that considers that independent director diversity as a moderating variable between board independence and firm innovation. Besides, this research contributes to the debate on the role of independent directors in firm innovation and the results may also serve as a guideline for policy makers and firms for structuring boards that are pro-innovation.

Environmental disclosures and corporate attributes, from the lens of legitimacy theory: a longitudinal analysis on a developing country

PurposeThe study seeks to evaluate the extent and quality of environmental reporting following a longitudinal analysis and covering a wide spectrum of industries in a single frame. The study also attempts to identify the set of most favored environmental reporting items by firms and items which are least disclosed. Furthermore, the study attempts to test whether certain corporate attributes such as firm size, age of the firm, leverage ratio, profitability, presence of independent directors in the board and gender diversity have any influencing power over environmental disclosure practices. The whole study has been carried out from legitimacy theory setting.Design/methodology/approachThe study follows longitudinal analysis to identify the extent and quality of environmental disclosures. A self-constructed checklist of 12 environmental reporting items has been developed analyzing the annual report and content analysis method is followed to measure the extent and quality of environmental disclosures and identify environmental reporting items which are mostly disclosed and which are least disclosed. The study further uses panel data regression analysis to investigate whether certain corporate attributes have any impact on environmental disclosures using multiple linear regression. Total of 345 annual reports of listed financial and nonfinancial institutions have been observed in this study ranging from 2015 to 2019.FindingsThe key finding suggests that strict enforcement of Green Banking Rules 2011 fosters country’s commercial banks to invest more to protect the environment and commercial banks encourage nonfinancial institutions for environmental performance and related disclosures through finance. Therefore, almost 50% of sample firms disclose their environmental performance through reporting in either narrative, quantitative or monetary format which was only 2.23% in the last decade. Findings also reveal that tree plantation is the most reported environment disclosure followed by investment in renewable energy and green infrastructural projects and the least reported items are fund allocation for climatic changes and carbon management policy. Further analysis shows that firm size and leverage ratio both have positive impact on environmental reporting.Research limitations/implicationsAn in-depth analysis may be conducted to identify why certain environmental items are least disclosed such as fund allotment for climatic changes, carbon management policy, etc. and how corporations may earn social appreciation and motivation by investing in those least preferred items in legitimacy theory setting. Future research may also take into consideration other corporate attributes which are not considered in the study.Originality/valueThe study conducted an in-depth analysis to understand the most favored form of environmental disclosures (narrative/quantitative/monetary) and their extent after incorporation of regulatory guidelines, which is the first of its kind in the research of environmental disclosures. The study indeed contributes to the documentation of environmental reporting in the context of a developing country where there is a lack of longitudinal analysis from the lens of legitimacy theory. Moreover, a wide spectrum of industries has been taken into consideration which facilitates the generalized findings on the environmental disclosure practices of corporations in Bangladesh.

Effect of Audit Committee Characteristics on Real Earnings Management through Abnormal Cash Flow

Aims: The purpose of this study is to examine the effect of audit committee characteristics on real earnings management (REM) through abnormal cash flow from operations of listed companies in Nigeria. The study was conducted on non-financial listed companies in Nigeria for the period of five years (2016-2020). The data were extracted from the sample of firm's annual reports and Thompson Reuters database. Ordinary Least Square (OLS) regression was employed to test the study model. The analysis is based on a sample of 76 listed non-financial companies for five years with 380 firm-year observations. The finding shows that audit committee size and financial expertise reduces management opportunistic earnings manipulations. Also, the result demonstrates that the presence of independent directors in the audit committee is significantly associated with lower earnings management practices. However, the result further establishes that audit committee meeting frequency and real earnings management are positively related. The findings will give an insight to investors, policymakers, and regulators by enabling them to better understand the importance of audit committee in improving the financial reporting quality (FRQ), and the effect of audit committee characteristics in mitigating earnings manipulations.

Independent directors in Sweden and their influence on earnings through accrual and real activities management

The dominating perspective grounded in agency theory predicts that independent boards are more effective in monitoring and thereby reducing earnings management, yet the extant empirical evidence is inconclusive. We nuance the relationship between board independence and earnings management by introducing two additional theories that explain independent directors’ role on the board: the theory of personal dependence and praxis theory. According to personal dependence theory, the influence of independent directors on earnings management is a function of their competitiveness in the labor market, whereas the praxis theory attributes directors’ influence to the influence of the dominant coalition. We focus on two dimensions of earnings management  accrual and real activities management, and account for both direction and magnitude of directors’ influence. Through an empirical test on 148 Swedish corporations from 2017, our findings indicate that the presence of independent directors may not necessarily reduce earnings management. Instead, independent directors may be subject to multiple and sometimes conflicting task demands which differently influence both magnitude and direction of earnings management. Implications for our understanding of the role of independent directors and their influence on corporations are presented

Do Indian Firms Engage in Greenwashing? Evidence from Indian Firms

This study aims to look at ESG reporting in India through the lens of greenwashing, with a focus on the companies listed in the National Stock Exchange under the NIFTY 50 index using available ESG scores and assessments. Further, it aims to measure the indulgence of greenwashing by the companies. This study also analyses and attempts to highlight the factors that influence a company’s greenwashing behaviour, focusing specifically on the Indian context. Data for the empirical study and calculation of greenwashing score is collected from secondary data sources. We further use a regression method to study the nature of influence and significance of various factors on the calculated greenwashing score and assess the findings with our hypothesis. The study identifies 54% from the 48 companies, part of our sample size as green washers. Most of these companies belong to the manufacturing and energy sector of the Indian economy. The regression results suggest that a company’s cross listing status or its presence in any ESG focus fund has a significant and negative relationship with its observed greenwashing score. On firm level characteristics, the regression results indicate that a company’s board size and the presence of independent directors have a significant impact on the company’s observed greenwashing score.

ТРАНСФОРМАЦИЯ ТРЕБОВАНИЙ К СИСТЕМЕ КОРПОРАТИВНОГО УПРАВЛЕНИЯ В РОССИЙСКОЙ ФЕДЕРАЦИИ В УСЛОВИЯХ ВНЕШНИХ ВЫЗОВОВ

Rating agencies are one of the elements of the corporate governance system. In the face of the challenges of the external environment, it is necessary to develop and maintain national rating systems in order to increase the transparency of corporate activities and attract additional sources of funding. Sectoral shifts in the economy, occurring under the influence of external challenges, can be observed by changes in the formed corporate ratings. Such information is relevant for use by different groups of stakeholders: by investors when assessing the stage of the life cycle of the industry as a whole and the prospects of a particular corporation, taking into account this factor, by the state when making decisions on state support for backbone corporations. Significant changes in the positions of corporations in the ratings can produce an increase in corporate conflicts between all participants in the corporate governance system. An increase in the share of non-controlling owners in IFRS reporting may be a predictor of an increase in conflicts between minority and majority shareholders. An increase in the share of non-controlling owners in IFRS reporting may be a predictor of an increase in conflicts between minority and majority shareholders. One of the tools for resolving conflicts of this type is the offer to buy out the shares of minority shareholders and the consolidation of the stake by the leading shareholders. In the context of global changes in the external environment, the direction of liability insurance of the Board of Directors of corporations and top management is of particular importance. At the same time, it is necessary to rethink the requirements for the mandatory presence of independent directors on the Boards of Directors. If there are independent directors who are not residents, we consider it appropriate to revise the subject matter of the insurance contract and increase the sums insured under the D&O policy.

Are independent directors enhancing value in the post mandate period?: Empirical evidence from India

We extend the corporate governance literature by examining the effect of independent directors on firm value in the context of regulatory stipulation, considering all firms listed on the National Stock Exchange from 2004 to 2017. We examined the impact during the pre‐and post‐regulation period using the difference in difference analysis. The results indicate a positive effect of board independence on firm value. Our results show that the presence of independent directors is high in the post‐mandate period compared to the pre‐mandate period, indicating that firms are complying with regulations with more than 50% of independent directors on the board. Our results align with resource dependency theory, providing evidence that a higher number of outsider directors on a board acts as an additional resource for firms. When CEO duality is absent, the role of independent directors decreases and consequently the regulatory mandate based on CEO duality is effective. Thus, independent directors are significant providers of resources to a firm's governance in emerging economies, especially in the post‐mandate period.

Board Independence and Acquisitions of External Knowledge: Overcoming the NIH Syndrome

The not-invented-here (NIH) syndrome, defined as a negative attitude toward outside knowledge, prevents organizations from absorbing external knowledge to generate further innovations. We argue that corporate-level actions can play an important role in neutralizing the NIH syndrome. In particular, we examine the role of independent members of boards of directors, given their monitoring and advisory functions. We hypothesize and show the existence of a positive link between the presence of independent directors on the board and the propensity to acquire outside knowledge. Furthermore, this relationship is more pronounced for companies that are more likely to suffer from the NIH syndrome and weaker when the independent directors’ monitoring power is limited by the power of the CEOs. Overall, our findings suggest that the effect is primarily driven by the supervisory function of the independent directors on the boards.

The challenge of performance in the governance of local authorities in Morocco: Issues and perspectives

Empirical studies have shown that board characteristics influence the choice of capital structure in listed and unlisted companies. This paper aims to add to the existing literature on corporate governance and capital structure decisions in listed companies in Morocco by examining the relationship between board characteristics and capital structure. The paper uses a panel of data from 53 Moroccan nonfinancial listed companies from 2015 to 2019. In order to properly examine this relationship, correlation analysis and multiple linear regression (OLS) are performed between the dependent and independent variables. This study found that the percentage of female board members, the size of the board of directors as well as company-specific variables such as asset tangibility and company size have a significant influence on capital structure decisions. However, the empirical results of the relationships are only statistically significant in the case of board size and the proportion of women on the board. While the presence of independent directors and CEO duality show no effect on capital structure. It is clear from the study that corporate governance structures influence the financing decisions of listed Moroccan firms. However, this study has limitations that could lead to future research in terms of choice of variables and statistical method.