Proportion Of Non-executive Directors Research Articles

Board composition, ESG practices, and firm performance: Evidence from the Pakistan stock exchange

This study delves into the intricate relationship between corporate governance factors, including board size and the proportion of non-executive directors, and firm performance, with a specialized focus on environmental, social, and governance (ESG) considerations. Employing a secondary data analysis methodology, the research draws insights from a comprehensive dataset comprising 100 companies listed on the Pakistan Stock Exchange over a period spanning from 2018 to 2022. The study investigates these relationships using rigorous regression analysis to uncover significant findings. The analysis reveals a robust positive correlation between larger board sizes and firm performance, indicating that companies with expanded boards tend to exhibit improved financial performance within the Pakistani market landscape. Conversely, a higher proportion of non-executive directors is associated with decreased performance, highlighting potential challenges stemming from board composition. Furthermore, the research unveils the pivotal role of ESG practices in augmenting the positive relationship between board size and firm performance. However, it notes that this enhancement weakens as the proportion of non-executive director’s increases, suggesting a nuanced interplay between corporate governance structures and ESG considerations. Practically, the study underscores the critical importance of fostering diverse and well-structured boards while integrating ESG principles into corporate governance frameworks. By carefully considering board composition and embracing ESG practices, organizations can not only enhance their financial performance but also promote sustainability and long-term value creation, aligning with evolving stakeholder expectations and regulatory requirements in the Pakistani business landscape.

Nexus between boardroom independence and firm financial performance: evidence from South Asian emerging market

This study empirically investigates the linkage between boardroom independence and the financial performance of non-financial firms in an emerging market featured by family-controlled businesses and concentrated ownership. The relationship is tested in a sample of 152 non-financial firms listed on the Pakistan Stock Exchange over a period from 2003 to 2018. Firms’ financial performance is measured through return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR), and Tobin’s Q (TQ), while boardroom independence is measured through the proportion of non-executive directors on the corporate board. Using the dynamic GMM approach to address the possibility of endogeneity, it was found that boardroom independence is significantly negatively related to the financial performance of the sample firms. This negative impact is due to the reason of close ties of outside independent directors (non-executive directors) with dominant shareholders and management in personal, financial, and social terms. A significant negative influence of the board size and CEO duality on firms’ financial performance was also observed. The present study will add to the existing literature on corporate governance and firm financial performance using firm-level manually collected data. Further, our findings will also help the policymakers by providing empirical insights for strengthening corporate governance mechanisms in emerging market economies, specifically in the context of Pakistan.

Corporate Governance and Financial Performance of State-Owned Enterprises Compared to Listed Firms in Zambia: 2002-2017

The study was a comparative analysis of the corporate governance practices and firm financial performances between State-Owned Enterprises and listed firms in Zambia. Using a cross-sectional panel data set covering the period 2002 to 2017, the t-test statistic was employed to compare the corporate governance practices and firm financial performances between unlisted State-Owned Enterprises, listed State-Owned Enterprises and listed private firms. It was found that corparate governance practices and firm financial performances between State-Owned Enterprises and listed firms in Zambia were significantly different. The board sizes for listed firms were statistically significantly less than those of State-Owned Enterprises and the proportion of non-executive directors on the boards of listed firms were also statistically significantly less than those of State-Owned Enterprises. On the other hand the proportion of female directors on listed firms were statistically significantly more than those of unlisted State-Owned Enterprises. In terms of firm financial performance, it was found that the mean of the Return on Total Assets for listed private firms was statistically significantly greater than the mean for unlisted State-Owned Enterprises. There were significant effect sizes in all the measured variables. This was a country specific study that contributed to the empirical knowledge on corporate governance practices and financial performances in State-Owned Enterprises and listed firms. The findings are of interest to researchers, corporate governance practitioners and government policy makers.

Corporate Governance and Audit Quality; Evidence from Nigeria Breweries

This study analyzed the effect of corporate governance on audit quality of selected brewery firms in Nigeria for a period of ten years spanning 2011-2020. The study employed ex-post facto and longitudinal research design. The secondary sources of data were collected from annual reports of the selected brewery firms quoted in their Nigeria Exchange Group and four (4) specific objectives and hypotheses were subjected to some preliminary data tests such as descriptive statistic, and Pearson correlation analysis and were analyzed using binary logistic regression analysis. Audit quality was used as the dependent variable, while board financial expertise, board size, board independence, and board meeting were used as the independent variables. Utilizing data from a sample of 40 firm year observations, we found that the proportion of non-executive directors and board size has positive and significant effect on audit quality. Based on the findings from the study, we therefore recommend that board size should be increased to a maximum number of six members for improved audit quality and quick decision making in relation to audited financial report. Also, Nigeria breweries should ensure that their board is composed of independent persons, with high level of integrity that can match words with action to improve their audit quality.

Impact of Corporate Social Responsibility on profitability of banks in Pakistan: Application of GMM Approach

The present study investigates the effects of corporate social responsibility (CSR) on financial performance of commercial banks in Pakistan employing the generalized method of moments (GMM) estimator on a panel data. A diverse sample of 25 banks is selected for the analyses for a period of 11 years (2010-2020) based on consistently available data. In addition to the CSR index, some bank-specific and macroeconomic variables are used as control variables to test for the effects of CSR initiatives on profitability of banks in Pakistan. Our findings demonstrate that the CSR drives and commitments on social expectations reward the banks with larger profit margins. Consequently, the results tend to validate the stakeholder theory where socially responsible enterprises lead towards greater financial performance. The control variables like capital intensity, credit risk, bank size, liquidity, age of the bank, proportion of non-executive directors, tangibility and GDP growth divulge mixed results. The diversity in results propose a number of policy and managerial implications both for policy makers and banks managers.

Effectiveness of Corporate Governance Attributes on Disclosure of Non-Financial Information in Developing Economies

The study examines how corporate governance attributes enhance disclosure of non-financial information in developing economies using a case study of companies listed on selected Stock Markets in Sub-Saharan Africa. Corporate governance attributes such as Chief Executive Officer (CEO) non-duality, board size, board composition, audit committee independence, block and director shareholdings are examined while controlling for firm size, profitability and leverage. The study adopts a quantitative research approach where panel data is obtained to carry out a comparative analysis of companies listed on stock markets of South Africa, East Africa and Nigeria. The data is collected from annual reports of each company for a period of four years and is analysed to obtain Random- Effects Multiple regression models. Findings indicate that the effect of CEO Non-duality, board size and having a higher proportion of non-executive directors on boards is significant and positive. Block ownership of shares and directors’ shareholdings have a negative effect on disclosure of non-financial information. However, the study does not provide evidence to suggest that Audit committee independence affects non- financial information disclosure. The major contribution of the study is to establish corporate governance attributes that play a vital role in disclosure of non-financial information using a comparative analysis of listed companies in Sub-Saharan Africa. The paper is the first of its kind in developing economies. Keywords : Corporate governance attributes, corporate disclosure, non-financial information. DOI: 10.7176/RJFA/12-4-02 Publication date: February 28 th 2021

Corporate governance and financial performance of insurance firms in Kenya

This study examined the relationship between corporate governance and the financial performance of insurance firms in Kenya over the period 2013–2018. The data were collected from 51 Insurance firms licensed to operate in Kenya as of 31 December 2018. Regression analysis was used and the results showed that corporate governance significantly affects the financial performance of insurance firms. In particular, the findings showed that board composition negatively and significantly affects financial performance. This implied that insurance firms with a bigger ratio of non-executive directors do not perform better than those with a less proportion of non-executive directors. Insurance firms should therefore reduce the ratio of non-executive directors in order to achieve better performance. The results also showed that board diversity positively and significantly affects financial performance. This implied that insurance firms with a bigger ratio of professional directors perform better than the firms with less proportion of professional directors to the board. Insurance firms should therefore engage more professional directors in order to provide professional guidance and enhance financial performance. The findings also indicated that board independence positively and significantly affects financial performance. This implied that firms with a bigger ratio of independent directors perform better than those with a smaller proportion of independent directors. Insurance firms should thus ensure that the board has an adequate number of independent directors in order to ensure independent or unbiased board decisions that will boost financial performance. The results also indicated that board size negatively and significantly affects financial performance. This implied that firms with bigger board sizes do not perform better than firms with smaller board sizes. The board size should thus be smaller to ensure efficiency and effectiveness of the board and better financial performance. This study concludes that proper corporate governance structure significantly affects the performance of a firm. Therefore, the study recommends that directors and other stakeholders should put in place appropriate governance structures in order to boost financial performance. Regulators and policymakers should also come up with policies and regulations that will ensure firms adopt appropriate governance structures to enhance performance. This study contributes to corporate governance literature by providing insight on the effect of corporate governance on performance from a developing country perspective. The study also provides an empirical examination of the effect of the various governance structures adopted by insurance firms and gives recommendations that can be utilized by policymakers in assessing and reviewing corporate governance policies. The study also gives recommendations to managers and other stakeholders regarding the board structure that can be adopted to boost the performance of a firm.

Is Board Independence a Panacea for Improved Corporate Performance? Evidence in a Developing Country Setting

Corporate governance was brought back into the limelight over the last decade, with the large number of dramatic corporate collapses around the world which drove some of the financial giants in the finance industry to bankruptcy. The need to revisit the mechanism for monitoring governance, especially since many of the big scandals emanated from the West, where a culture of good corporate governance was seemingly embedded in the corporates. The board of directors has long been recognized as the primary and dominant internal corporate governance mechanism for aligning the interests of managers and all stakeholders to a firm. Separation of ownership from management raises a key issue of how to effectively monitor managers to ensure that they act in the best interest of the shareholders and other stakeholders as well. The role of independent directors in improving the effectiveness of control has been the subject of debate in academic literature, especially in the context of a developing country where unlike in the developed economies, a culture of poor corporate governance is the norm rather than the exception. The paper explores this issue, paying particular attention on the relationship between corporate board independence and firms’ financial performance in a development country setting. Using data obtained from Colombo Stock Exchange, Sri Lanka for the period 2004 through 2009, a sample consisting of fifty firms were used to assess board independence and their impact on performance. Data was gathered through published reports and a primary survey. Independence of the board was deconstructed to board composition as measured by proportion of independent directors and proportion of non-executive directors. The firm performance was measured using both financial and market performance indicators. After controlling for industry, firm size and CEO duality, the results indicate support for stewardship perspective, with no convincing evidence to indicate that inclusion of independent directors is associated with improved financial performance. The weak governance structure which could be exemplified by ownership entrenchment, cross sitting of board members and lack of cumulative voting may explain the lack of evidence found. However, the results indicate that inclusion of independent directors is valued by investors and reflected in enhanced firm value. Keywords: Board independence, corporate governance, performance DOI: 10.7176/EJBM/12-33-06 Publication date: November 30 th 2020

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 change in board independence in the presence of firm risk and regulation

The purpose of the paper is to explore the impact of firm risk on board independence, typically the proportion of non-executive directors. Our sample is based on a panel data of publicly listed firms on Vietnamese stock markets over a ten-year period (2007-2016). By applying dynamic generalized method of moments estimators, the results are robust to endogeneity issues and highlight the U-shaped nonlinear impact of firm risk on non-executive director ratio. In addition, because the lack of information transparency in Vietnamese enterprises caused many risks for investors, the government issued the Circular 121/2012/TT-BTC dated July 26, 2012 on corporate governance applicable to public companies, which enhanced changes in the board structure of listed companies. Under the pressure of this regulation, high-risk companies increased the proportion of non-executive directors.

The Relationship Between Board Diversity and Corporate Financial Performance: <i>Empirical Evidence from Five Selected Commercial Banks in Nigeria</i>

The purpose of this research was to investigate the nature of the relationship between board diversity and financial performance of deposit money Banks quoted on the Nigerian stock exchange. Based on extensive review of the literature, three board diversity variables were identified namely gender (measured by the proportion of women in the boardroom), non-executive directors (measured by the proportion of non-executive directors that make up the boardroom) and board size. Financial performance was measured using Return on Assets (ROA) and Return on Equity (ROE). The Fixed effects Panel data regression model was used to test the nature of relationship between the board diversity variables and the financial performance variables, using secondary data from the Banks annual financial statements covering the period from 2006-2017. The result of the analysis showed that gender diversity has a statistically significant positive impact on banks financial performance. On the other hand, the study also indicated that non-executive directors and board size do not have a significant impact on banks performance. Based on the findings from this study, it was therefore recommended that quoted deposit money banks in Nigeria should raise female proportions in their boardroom so as to improve financial performance.

Board leadership structure and earnings quality

PurposeOne main concern and issue affecting earnings quality is the extent to which managers manipulate earnings to mislead stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers. This study builds on prior research and examines empirically the relationship between board leadership structure and earnings quality of manufacturing firms in Nigeria. The purpose of this paper is to specifically focus on four board structure characteristics: board size, composition, proportion of non-executive directors and CEO duality.Design/methodology/approachData used for this investigation were collected from secondary sources, i.e. annual reports and accounts. The study used the Pooled OLS regression model to examine the effect of the board structure on earnings management for a sample of 45 non-financial listed Nigerian companies (conglomerates, consumer goods and industrial goods firms) for the years 2011 to 2016.FindingsBased on the analysis, board size and board composition were positive and significant. However, proportion of non-executive directors was negative and significant; while, CEO duality was positive and statistically significant. It was consequently recommended that audit firms should review their audit business model and become more circumspect of their client, e.g. provide fraud assessment and checks for earnings quality. Boards should not just reflect size but rather the skills and expertise of individuals appointed to the board. Furtherance to this, the effectiveness of boards can be improved by committees and sub-committees allocation of duties.Originality/valueFew studies have addressed this area in the country.

Board Characteristics and Earnings Quality of Listed Conglomerate Firms in Nigeria

<p>This study examines the effect of Board Characteristics on Earnings Quality of Nigeria Conglomerate firms. Data were extracted from the audited accounts of Nigeria conglomerate firms using secondary source of data collection. Two step regression was employed in analyzing the data extracted. The result indicated that the board characteristics proxies have a significant impact on earnings quality of Nigerian Conglomerate firms. This establishes the fact that board characteristics play a significant role in checkmating the unethical behaviours of managers in the Nigerian conglomerate firms and thus improving the earnings quality. The study therefore, recommends that the proportion of non executive directors should be maximized. Emphases should be on experience and objectivity when appointing women as members on board of directors not by mere quest for gender sensitivity. The implication of the findings is that firm with higher number of non executive and women directors are more likely to report quality earnings.</p>

Corporate Board Diversity and Sustainability Reporting: A Study of Selected Listed Manufacturing Firms in Nigeria

The objective of the study is to ascertain the influence of corporate board diversity on sustainability reporting on a sample of quoted manufacturing firms in Nigeria. The study adopts a panel research design. The population of the study comprised quoted manufacturing companies on the Nigerian Stock Exchange. This was restricted to companies classified under conglomerates, consumer goods, and, industrial goods sector. The study used secondary data, extracted from the annual reports of the studied manufacturing companies. Fixed effects panel regression analysis was used to test the hypotheses. The dependent variable sustainability reporting was measured using an Economic, Social, and Governance (ESG) index, the independent variables were board member nationality, proportion of women directors, proportion of non-executive directors, and multiple directorships. The results show no significant positive influence of board member nationality, while proportion of women directors, proportion of non-executive directors, and multiple directorships were significant. The study recommends among others, the adoption of NSE Sustainability Disclosure Guidelines for a unified integrated reporting framework for Nigerian firms, secondly, a heterogeneous board composition, which can leverage on the diverse set of skills of board members.

Governance structures, cash holdings and firm value on the Ghana Stock Exchange

PurposeThere is an existing relationship among shareholders, boards of directors and management of companies. Corporate governance practices of companies are expected to ensure that this relationship maximises the wealth of shareholders. Differences exist among corporate governance of companies listed on the Ghana Stock Exchange. Companies, for purposes of liquidity, hold cash, but cash holdings also add to the cost of financing, according to working capital theories. The study, thus, sought to examine the relationship between corporate governance practices, ownership structure, cash holdings and firm value.Design/methodology/approachThe study deployed the seemingly unrelated regression to reduce the problem of multicollinearity resulting from the strong relationship between cash reserves and some control variables.FindingsThe study found no significant relationship between board size and firm value. Similar findings were also made on the relationship between proportion of non-executive directors on the board and firm value. However, firms audited by the big four audit firms are valued higher by the capital market. Cash holdings of firms negatively affect performance, and this is statistically significant. A positive relationship arises between a firm’s cash holdings and its value as a result of debt financing, even though this is not significant.Originality/valueThe study is the first of its kind that deploys Tobin’s Q as a measure of firms’ value to reflect investors’ valuation of firms in Ghana. The study is also the first of its kind to test the interactive effect of debt financing and cash holdings on firm value in Ghana.

The Effects of Corporate Governance on Enterprise Risk Management: Evidence from Malaysian Shariah-Compliant Firms

The 2008 global financial scandals have increased pressure on corporations to improve corporate governance practices particularly on risk management. As a response to the crisis, corporate governance reforms have been evidenced. Enterprise risk management (ERM) was introduced as one of the mechanisms that can improve corporate governance practices particularly on risk management. Since its introduction, ERM has received major attention from corporations. Despite the claim that ERM is the solution for corporate governance deficiency, the number of empirical research examining this new field is still limited. Thus, this study aimed at assessing the current development of ERM practices and identifying corporate governance characteristics that influence ERM implementation among Malaysian Shariah-compliant firms. The extent of ERM implementation was measured by using ERM Dimension index (ERMDi). A questionnaire survey was developed based on ERMDi to gather information on the extent of ERM practices. Four corporate governance characteristics were examined that are risk management committee (RMC), board size, proportion of non-executive directors and board expertise and its influence to ERM implementation. The data was analyzed by using Partial Least Squares and Structural Equation Modelling technique (PLS-SEM). Findings of this study show that the extent of ERM implementation among sample firms is at the moderate level and based on PLS-SEM analyses, board size and board expertise has a strong influence to ERM implementation. This study, find support that corporate governance characteristics have a positive and significant association with ERM implementation. The findings of this paper provide an additional empirical evidence regarding the extent of ERM practices and corporate governance characteristics that would influence ERM implementation among Malaysian Shariah-compliant firms.

Agency costs, ownership structure and corporate governance mechanisms in Ghana

This paper analyses the relationship between agency costs, ownership structure and corporate governance mechanisms in Ghana for the study period 2000-2009. Our results show that smaller board size and the presence of audit and remuneration committees decrease agency costs. We also find that higher managerial and institutional ownership reduces agency costs. However, duality and the proportion of non-executive directors on the board have no effect on agency costs, suggesting that not all board structure governance mechanisms are effective in mitigating agency costs. Interestingly, the non-board structure code recommendations such as improved shareholder voting rights, the adoption of International Financial Reporting Standards and auditor quality have also reduced agency costs. Overall, we find that the introduction of the Ghanaian Code played significant role in reducing agency costs.

Voluntary disclosure and corporate governance: empirical evidence from Kuwait

PurposeThe purpose of this paper is to assess and analyse the level of voluntary disclosure practices in the annual reports of Kuwait Stock Exchange (KSE) listed firms and explore the association between corporate governance mechanisms and voluntary disclosure practices.Design/methodology/approachPanel data analysis was undertaken over a period from 2005-2008 with an aim to examine the influence of corporate governance mechanisms on voluntary disclosures made by 52 listed firms in their four years of annual reports. An unweighted voluntary disclosure index has been used for hand-collecting data from annual reports.FindingsThe findings show that the mean voluntary disclosure level over the four years is 23 per cent. Four out of eight corporate governance mechanisms examined found to be significantly associated with the level of voluntary disclosure, three negatively, one positively. Cross directorship, board size and role duality are negatively related to voluntary disclosure, while government ownership is positively related to voluntary disclosure. In contrast, the proportion of non-executive directors, family members on the board, the presence of an audit committee and the presence of the ruling family on the board have an insignificant influencer on voluntary disclosure practices.Practical implicationsThe study provides an assessment of KSE-listed firm voluntary disclosure practices and its determents and highlights that that corporate governance attributes affect the voluntary disclosure practices of KSE-listed firms.Originality/valueThe findings of this study contribute to the arguments concerning the role of corporate governance mechanisms in improving the level of disclosure and information transparency.

Impact of corporate characteristics on human resource disclosures

Purpose Human resource (HR) disclosures are voluntary in nature in most countries including India. The voluntary nature of HR disclosures results in discrepancy in the HR disclosure practices across companies and industries. The purpose of this paper is to examine the extent of HR disclosures in annual reports of Indian listed companies and to identify their determinants in a three stage analysis. Design/methodology/approach In the first stage a 16 item human resource disclosure index (HRDI) has been constructed for the set of CNX 200 companies listed on National Stock Exchange. Thereafter the effect of various independent variables on HRDI is analysed descriptively. Finally in the third stage HRDI has been regressed against the independent variables using regression analysis technique to identify key determinants of HRDI. Findings The research reveals that there is high variation among sample companies as regard HRDI. The results of descriptive analysis, correlation analysis and multivariate regression analysis establish that government’s participation in ownership and market capitalisation has positive significant effect on HRDI at 1 per cent, presence of separate HR directors committee, presence of more independent directors on board at 5 per cent and cross-list America and profit after tax at 10 per cent level. Implicitly HRDI is positively affected by size of company as measured by market capitalisation. Though contrary to expectations, other variables leverage, number of employees, assets, ownership concentration, type of auditor, age, complexity of business structure, employee expense to total operating expense ratio, industry affiliation, foreign investment and proportion of non-executive directors on board are found to have moderate though insignificant influence on HRDI. Research limitations/implications Cross-sectional design, dependence on annual reports as a primary document for disclosure and subjectivity in HRDI construction are the main limitations of the research. A longitudinal study may be carried to study the pattern of HR disclosures in future. Weighted ranking of different items of disclosures may be studied to improve the understanding of extent of disclosures. Practical implications The HRDI as constructed in the research may be used as a benchmark by companies to improve their HR disclosures. It can also be used by accounting bodies and company regulators while deciding about standards regarding HR disclosures. Investors can also use HR disclosures made by a company as a basis to understand its financial standing and future potentials. Originality/value The study adds to the existing literature by developing 16 item HRDI to measure the extent of disclosures by listed companies in India and thereafter by including some new propositions in the determinants of HRDI have never been tested in the existing studies. These propositions are government’s participation in ownership, separate HR committee of directors, board composition and foreign activity. These propositions have been empirically validated in this research except for foreign activity.

Intellectual Capital Disclosure: the Portuguese Case

The purpose of this research is to identify the factors that can explain practices of voluntary disclosure of information on intellectual capital (IC). This is an empirical quantitative study that seeks to examine the influence of certain firm characteristics (firm size, auditor type, ownership concentration, industry, proportion of non-executive directors (NEDs) on the board, chairman/CEO duality and audit committee) on intellectual capital disclosure (ICD) in Portuguese companies. ICD data for this longitudinal study were gathered from the annual reports of 32 Portuguese listed firms over 5 years using content analysis. The results of this study indicate that firm size and industry are explanatory factors of the level of disclosure of information on intellectual capital. One of the limitations of the empirical part of the study derives from choosing the content analysis method because it is subject to the subjectivity of interpretation. Another limitation is the small sample size and the application only to Portugal which reduces the ability to generalize the results to other settings. This study contributes to the IC literature, providing new empirical data covering the analysis of 5 years of disclosure related to corporate governance.