Presence Of Non-executive Directors Research Articles

Enhancing Shareholder Value through Corporate Governance Mechanism in Saudi Arabia

This study investigates the effect of corporate governance mechanism in relation to shareholder value in Saudi Arabia listed companies. In today’s business, shareholder value has a great concern to the company shareholders. Numerous studies have been investigated shareholder value but with inconsistent empirical evidence. The focus of this research is to examine the impact of corporate governance mechanism (board independence) on shareholder value measured by share price and dividend yield. This is an empirical paper which proposes to determine the extent of board independence on shareholder value in the perspective of Saudi Arabia. The current study employed pooling regression analysis to retailing sector companies in Saudi Stock Exchange (Tadawul) from 2010 to 2019. The research has found that the presence of non-executive directors on the corporate board enhanced shareholder value. Likewise, board independence has a significant positive impact on shareholder value. The proposed study has value for Saudi Arabia government, corporate boards, stock exchange, shareholders, and policy makers by highlighting the distinct impact on shareholder value and its relation on board independence.

Board characteristics, audit committee attributes and firm performance: empirical evidence from emerging economy

PurposeThis study is designed and directed to analyze the effect of board characteristics and audit committee attributes on the firm performance of publicly listed commercial banks of Bangladesh.Design/methodology/approachThirty publicly listed commercial banks of Dhaka Stock Exchange (DSE) have been taken as sample for this study. Data have been collected from annual reports between 2011 and 2017 of the assessed banks. Pooled OLS model has been used for running regression model of this study.FindingsBoard independence has a negative and significant relationship with ROA and Tobin's Q. However, Board Independence has a positive and significant relationship with Stock Return. On the other hand, Board Diversity has a negative and significant relationship with ROA and ROE, which implies inefficiency of diversified board members in the context of Bangladesh. Family duality has a positive and significant relationship with ROA and a negative and significant relationship with Stock return. Board Meeting has a positive and significant relationship with ROA. Audit Committee Size has a negative and significant relationship with Tobins' Q. Independence of audit committee chairman has a negative and significant relationship with Tobin's Q and Stock Returns. Presence of non-executive directors and number of audit meetings have no significant relationship with any of the predicted variables.Research limitations/implicationsAmong all variables of the board characteristics, role of independent directors and participation of female directors have conflicting results in this study. This has raised a question about the fair appointment independent directors and their objective view on the board. Female directors' role is not convincing in the context of Bangladesh as most of the commercial banks are family-owned. Policymakers can tighten and supervise the appointment of independent directors to ensure good governance in the banking sector. Moreover, role of audit committee and independence of audit committee chairman have generated conflicting results in terms of market-based performance measure.Originality/valueBanking sector of Bangladesh experiences huge corruption in the form of excessive NPLs and poor management quality which results in low profit for the firm. This study has explored the problems of management quality and flaws of audit committee which is hampering overall growth of banking industry. Improvement of independent directors' appointment and audit committee formation and reporting will certainly help banking industry of Bangladesh to improve overall performance.

Board gender diversity, governance and Egyptian listed firms' performance

PurposeThe study aimed to examine the effect of corporate governance mechanisms on the performance of Egyptian firms listed in the Egyptian Stock Exchange (EGX) between 2014 and 2016.Design/methodology/approachWe relied on agency theory and resource dependence theory to generate testable hypotheses and capture the empirical findings. We regressed various performance measures (Return on Assets; Asset Utilization Ratio, Tobin's Q) regarding governance mechanisms (institutional ownership, managerial ownership, board size, board frequent meetings, the presence of non-executive directors and female directors) while controlling for firm size, leverage, years of listing and market share. The study uses ordinary least square (OLS) and two stages least square (2SLS) regression analysis to address the possible endogenous impact of the firms' ownership structure.FindingsBoard gender diversity, the managerial ownership and frequent board meetings positively influence the Egyptian firms' efficiency measured by assets utilization, while the institutional ownership and board size have negative effects. When using Tobin's Q, the managerial ownership shows a negative effect while institutional ownership and board size present positive effects. When using 2SLS regression, findings remained stable whereas non-executive directors showed a significant negative association with assets utilization.Practical implicationsPolicy makers are recommended to draft policies related to limiting the number of board members, diluting the government's indirect ownership of firms, empowering women in boardrooms and developing the skills needed for non-executive directors.Originality/valueTo the best of our knowledge, our study is one of very few that address firms' performance after a period of political instability accompanied by a greater role for females in the boardrooms of Egypt.

Impact of Women and Independent Directors on Corporate Social Responsibility and Financial Performance: Empirical Evidence from an Emerging Economy

The purpose of our study is to investigate the impact of women and independent directors on corporate social responsibility and financial performance. We use the fixed effect regression model as a baseline methodology. The data set includes information from 2010 to 2019 regarding Chinese non-financial companies, from which we use yearly information. The RSK rating is used for the assessment of corporate social responsibility reporting, ranging from 0 to 100, and other data are taken from the China stock market and accounting research (CSMAR) database. We use a two-stage least square (TSLS) regression model to control the possible problem of endogeneity. The empirical results show that gender diversity in boards significantly and positively affects CSR reporting. We do not find an effect due to non-executive directors on CSR reporting. The presence of non-executive directors on a board is mostly trivial in the case of China, as they do not have much influence with regard to decision making, especially related to CSR reporting. The control variables, such as board size, board member meeting frequency and leverage, are also found to have a significant effect on CSR reporting. Therefore, our results add a new aspect to the emerging literature on CSR reporting, especially in China. Furthermore, our results are robust with regard to the alternative variables under consideration. Our study has important implications. Our research enriches the existing literature on CSR and highlights the importance of female and independent directors having an impact on decisions related to the increased reporting of CSR activities. Our study contributes to the existing literature by presenting a pioneering investigation of the effect of female and independent directors on CSR reporting, as well as shedding light on the relationship in the context of an emerging economy.

The risk management role of nonexecutive directors: from capital expenditure perspective

PurposeThis study investigates the impact of board independence on firm risk of Vietnamese listed firms and the moderating effect of capital expenditure on this relationship.Design/methodology/approachThis paper applies fixed effects and dynamic generalized method of moments (GMM) models to examine hypothesized associations between the proportion of nonexecutive directors and stock return volatility, as well as the moderating effect of capital expenditure. The robustness tests are implemented by applying alternative measures of overinvestment and firm risk.FindingsThe results show that the presence of nonexecutive directors on board increases firm risk. However, the combination of nonexecutive ratio and capital expenditure ratio has a significant negative impact on firm risk. The result is also confirmed by the difference between the monitoring role of nonexecutive directors in overinvesting and underinvesting firms.Research limitations/implicationsThe results imply that Vietnamese listed firms take stock return volatility into consideration before nominating and appointing nonexecutive directors into their board, especially in overinvesting firms. From another perspective, the shift toward having a majority of nonexecutive directors on boards can play a significant role in pursuing a stable or risky business strategy.Originality/valueThis paper investigates the influences of nonexecutive directors on firm risk in the context of Vietnam.

The monitoring role of nonexecutive directors in Vietnam from a return-volatility perspective

This study examines the relevance of board independence to stock return volatility for a sample of 160 companies listed on the Vietnamese stock market over ten years (2008-2017). After controlling for potential endogeneity, we find that the presence of non-executive directors on the board tends to increase firm risk. The results indicate that non-executive directors do not play a supervisory role under the agency theory. Our findings remain robust when we apply alternative measures of the dependent variable.

Corporate Tax Avoidance Incentives of Banks in Ghana

ABSTRACT This study built on the tax avoidance literature in at least two main strands: 1) applying the tax avoidance theories and hypothesis to financial institutions which have been neglected in the empirical literature; and 2) assessing the possibility of tax avoidance persistence among banks, from a developing country perspective. Data from 18 commercial banks in Ghana from 2010 to 2014 were analyzed using systems generalized method of moments estimation technique. The study concluded that while the presence of non-executive directors on boards, aging banks, and liquidity condition motivate banks to engage in tax avoidance schemes, big banks and banks at their latter stages in their lifecycle are discouraged from undertaking tax avoidance activities. Thus, tax avoidance activities exist in financial institutions just like non-financial firms but no evidence exists to support the assertion that tax avoidance schemes persist among banks. Managers of financial institutions must take advantage of existing tax avoidance opportunities by designing appropriate policies that factor in relevant firm-level characteristics.

Corporate Governance, Ownership Structure, and IPO Underpricing: Evidence from the Indian New Issue Market

This paper attempted to contribute to extant literature on IPO underpricing by examining the effect of corporate governance on IPO underpricing. Although, previous research in the field of corporate governance has already studied the role of effective corporate governance on several fronts, the role of corporate governance in abating information asymmetry and thereby signalling the value of firms to potential investors is an area that is yet to be explored (particularly in context of Indian new issue market). The results of the present study indicated that presence of independent directors on board was more informative than presence of non-executive directors ; also, merely meeting the regulatory requirement while determining the board composition did not send a quality signal. The results revealed that only those firms which go beyond the minimum regulatory requirements pertaining to corporate governance norms catch some attention of investors.

Do Board Expertise and Networked Boards Affect Environmental Performance?

We examine the resource provision role of the board of directors in ensuring substantive corporate sustainability practices. Specifically, we examine two channels of resource provision (i.e., the presence of non-executive directors with previous experience in environmental issues—EEDs—and network connections of EEDs) that can affect a firm’s ethical and environmental behavior. Using greenhouse gas (GHG) emissions data from FTSE 350 firms, as a measure of environmental performance, we show that the presence of EEDs on the board is associated with lower GHG emissions. Further, firms with better-networked EEDs have better environmental performance. A possible mechanism is that firms with EEDs invest more in environmental technology. These results suggest that, in addition to the traditional role of shareholder value maximization, the board of directors also caters to the interests of wider stakeholders of the firm by facilitating substantive ethical practices.

Board structure and corporate risk taking in the UK financial sector

This paper examines the relationship between board structure and corporate risk taking in the UK financial sector. We show how the board size, board independence and combining the role of CEO and chairperson in boards may affect corporate risk taking in financial firms. Our sample is based on a panel dataset of all publicly listed firms in the UK financial sector, which includes banks, insurance, real estate and financial services companies over a ten year period (2003−2012). After controlling for the effects of endogeneity through the application of the dynamic panel generalized method of moments estimator, the findings of this study suggest that the presence of non-executive directors and powerful CEOs in corporate boards reduces corporate risk taking practices in financial firms. The negative relationship can be explained within the agency theory context, where managers are regarded as more risk averse because of the reputational and employment risk. An increased power concentration is therefore expected to enhance the risk aversion behaviour of directors. The findings however, do not show any significant effect of board size on corporate risk taking in financial firms. As this study covers recommendations of the UK Corporate Governance Code on the role of corporate boards in managing firms' risk, the empirical evidence could be useful for corporate governance regulation and policy making.

Board Expertise, Networked Boards and Environmental Performance

We analyze the role of board expertise in environmental issues (measured by the presence of non-executive directors with previous experience in environmental issues, EEDs) and director networks on GHG emissions. Using emission data of FTSE 350 firms, we show that the presence of EEDs on the board reduces GHG emissions. Also boards with better networked directors have better environmental performance. These associations are robust to alternative explanations - endogenous matching of firms and directors, general technical expertise of the board, and pro-active stacking in board composition. The results are consistent with the view that director skills and information spillovers through director networks add value.

Graphical reporting practices in the annual reports of jordanian banks: An empirical analysis

This study aims at investigating graphical reporting practices in the annual reports of Jordanian banks. Data are collected from the annual reports of 15 banks listed on Amman Stock Exchange for the period 2008-2013. The study revealed that graphs are being moderately used by Jordanian banks to present information in their annual reports. The presence of non-executive directors on the boards of Jordanian banks tend to limit graph usage in their annual reports. In addition, the study provides clear evidence for the presence of improperly designed graphs in the annual reports of Jordanian Banks. Thus, regulators in Jordan such as the Security Exchange Commission may need to develop a set of guiding principle for properly designed graphs. Furthermore, effort has to be devoted to encourage firms to comply with these principles.

Board of Directors and Capital Structure: Evidence from Leading Malaysian Companies

Malaysia is one of the rapidly developing economies in South-East Asia which embraces the concept of good corporate governance due to the 1997-1998 Asian financial crises. This study investigates the relationship between board of directors and company’s capital structure in an emerging market, Malaysia. This research paper covers 75 non-financial leading Malaysian companies, which are employed as a price index, listed on Kuala Lumpur stock exchange (KLSE) from the year 2005 to 2008 fiscal years. A multiple regression analysis has been used to examine the linkage between board of director’s features and capital structure decisions of the listed companies. Measures of board of directors employed are size of the board, presence of non-executive directors on the board, presence of independent non-executive directors on the board and CEO/Chair duality. Results reveal that board size and presence of independent non-executive directors on the board have significant, negatively and positively correlation with debt to asset ratio respectively. However corporate capital structure decisions are not found significantly influenced by CEO/Chair duality and the presence of non-executive directors on the board. Consequently based on the results, board of director’s features such as board size and presence of independent non-executive directors on the board play an important role in determination of financial mix of the companies.

Chartered accountant and public accounting experience non-executive directors on UK boards: Signals of quality earnings reporting to investors prompting price-to-earnings growth

This research seeks to determine for the first time whether the presence of non-executive directors with chartered accountant and public accounting financial expertise on UK boards is important to investors in terms of signaling higher reporting quality. If so, investors should be willing to give higher premiums on stock prices over earnings than for companies with boards without these financial expertise characteristics. In this era not so distant from Enron and Parmalat, investors should value these characteristics to be present in evaluating the external and internal audits in financial reporting. The average price-to-earnings growth for companies with these board characteristics is 145.11 percent compared to an average decrease of 99.85 percent for those companies that do not

The king reports, independent non-executive directors and firm valuation on the Johannesburg stock exchange

South Africa (SA) has pursued corporate governance reforms in the form of the 1994 and 2002 King Reports. This paper examines the association between the presence of independent non-executive directors (INEDs) and market valuation of a sample of 169 firms listed on the Johannesburg Stock Exchange (JSE) in SA from 2002 to 2007. Our results suggest a statistically significant and positive relationship between the presence of INEDs and firm valuation. By contrast, we find no statistically significant association between the presence of non-executive directors (NEDs) and firm valuation. Our findings are robust across a number of econometric models that control for different types of endogeneity problems, non-linear associations and firm valuation proxies. Our findings have important policy and regulatory implications. Whereas our evidence that more independent corporate boards’ impacts positively on firm valuation provides support for the recommendations of the King Reports, it shows that to be meaningful, director independence has to be more carefully and strictly defined.

Impact of Ownership Structure and Corporate Governance on Capital Structure of Pakistani Listed Companies

This paper explores the relationship between corporate governance and capital structure of listed companies in an emerging equity market, Pakistan. The study covers the period 2002 to 2005 for which firm level data for 58 randomly selected non-financial listed companies from Karachi Stock Exchange has been examined by using multivariate regression analysis under fixed effect model approach. Measures of corporate governance employed are board size, board composition, and CEO/Chair duality. Impact of shareholding on financing decisions has also been examined by using managerial shareholding and institutional shareholding. Similarly influence of controlled variables like firm size and profitability on firms’ financing mechanism is also investigated. Results reveal that board size and managerial shareholding is significantly negatively correlated with debt to equity ratio. However corporate’s financing behavior is not found significantly influenced by CEO/Chair duality and the presence of non-executive directors on the board. However, control variables firm size and return on assets are found to have a significant effect on capital structure. No temporal effects are observed. Therefore results suggest that corporate governance variables like size and ownership structure and managerial shareholding play important role in determination of financial mix of the firms.