The joint effect of board characteristics on financial performance

2015 ◽  
Vol 14 (1) ◽  
pp. 20-40 ◽  
Author(s):  
Hayam Wahba
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Joint Effect ◽  
Governance Mechanisms ◽  
Content Type ◽  
Board Characteristics ◽  
Corporate Governance Mechanisms ◽  
Leadership Structure ◽  
Board Leadership Structure ◽  
The Relationship

Purpose – This paper aims to investigate the joint effect of board characteristics on financial performance. Most of the existing literature implicitly assumes that the relationship between either board composition, or board leadership structure and financial performance is direct. Design/methodology/approach – The generalized least squares method was performed as a panel data analysis on a sample of 40 Egyptian listed firms during the period from 2008 to 2010. Findings – The results demonstrated that under board leadership structure that assigns the duties of the CEO and chairman to the same person, increasing the proportion of non-executive members to the total number of directors has a negative impact on firm financial performance. Practical implications – First, corporate governance structures do not operate in a vacuum, and therefore, corporate governance mechanisms must be considered and assessed altogether. Second, failure to understand the underlying interdependency among corporate governance mechanisms may result in arguments that blame some corporate governance designs for poor financial performance. Third, there is no single board governance mechanism that can be considered ideal, but there are combinations of these mechanisms that are preferred. Originality/value – The paper adds to the corporate governance literature by providing empirical evidence from the emerging market of Egypt. The evidence shows that the relationship between board characteristics and financial performance is not a monotonic relationship. Consequently, these findings imply that existing evidence explaining the relationship between board characteristics and financial performance needs to be interpreted with some caution.

scholarly journals The relationship between corporate governance and financial performance

2019 ◽  
Vol 9 (1) ◽  
pp. 54-78 ◽  
Author(s):  
Zaid Saidat ◽  
Mauricio Silva ◽  
Claire Seaman
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Family Firms ◽  
Corporate Performance ◽  
Independent Directors ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

PurposeThe purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015.Design/methodology/approachThis research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’sQas proxies for corporate financial performance.FindingsThe study found that board size both in term of Tobin’sQand ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’sQ. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’sQin family and non-family firms.Originality/valueStudies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

scholarly journals Corporate governance and conglomerate diversification strategy – evidence from Vietnam

2018 ◽  
Vol 13 (6) ◽  
pp. 1578-1596 ◽  
Author(s):  
Thi Xuan Trang Nguyen
Keyword(s):  
Corporate Governance ◽  
Stock Exchange ◽  
Board Composition ◽  
Governance Mechanisms ◽  
Content Type ◽  
Unrelated Diversification ◽  
Corporate Governance Mechanisms ◽  
Control Devices ◽  
Interest Alignment ◽  
The Relationship

Purpose The purpose of this paper is to examine the impact of internal corporate governance mechanisms, including interest alignment and control devices, on the unrelated diversification level in Vietnam. Additionally, the moderation of free cash flow (FCF) on these relationships is also tested. Design/methodology/approach The study is based on a balanced panel data set of 70 listed companies in both stock markets, Ho Chi Minh Stock Exchange and Hanoi Stock Exchange, in Vietnam for the years 2007–2014, which gives 560 observations in total. Findings The results show that if executive ownership for CEOs is increased, then the extent of diversification is likely to be reduced. However, the link between unrelated diversification level and executive stock option, another interest alignment device, cannot be confirmed. Among three control devices (level of blockholder ownership, board composition and separation of CEO and chairman positions), the study finds a positive connection between diversification and blockholder ownership, and statistically insignificant relations between the conglomerate diversification level and board composition, or CEO duality. Additionally, this study discovers a negative link between diversification and state ownership, although there is no evidence to support the change to the effect of each internal corporate governance mechanism on the diversification level of a firm between high and low FCF. Practical implications The research can be a useful reference not only for investors and managers but also for policy makers in Vietnam. This study explores the relationship among corporate governance, diversification and firm value in Vietnam, where the topics related to effectiveness of corporate governance mechanisms to public companies has been increasingly attractive to researchers since the default of Vietnam Shipbuilding Industry Group (Vinashin) happened in 2010 and the Circular No. 121/2012/TT-BTC on 26 July 2012 of the Vietnamese Ministry of Finance was issued with regulations on corporate governance applicable to listed firms in this country. Originality/value This research, first, enriches current literature on the relationship between corporate governance and firm diversification. It can be considered as a contribution to the related topic with an example of Vietnam, a developing country in Asia. Second, the research continues to prove non-unification in results showing the relationship between corporate governance and conglomerate diversification among different nations. Third, it provides a potential input for future research works on the moderation of FCF to the effects of corporate governance on diversification.

Does audit committee substitute or complement other corporate governance mechanisms

2017 ◽  
Vol 32 (7) ◽  
pp. 658-681 ◽  
Author(s):  
Yousef Hassan ◽  
Rafiq Hijazi ◽  
Kamal Naser
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Audit Committee ◽  
Negative Relationship ◽  
Governance Mechanisms ◽  
Governance System ◽  
African Countries ◽  
Content Type ◽  
Board Characteristics ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to examine the relation between audit committee (AC) and a set of other corporate governance mechanisms in one of the emerging economies, United Arab of Emirates (UAE). In particular, the current study examines whether an effective AC can serve as a substitute or as a complement mechanism to board characteristics and ownership structure of Emirati listed non-financial companies. Design/methodology/approach Using substitution and complementary theories, a panel data from 48 nonfinancial companies listed on the UAE Stock Exchanges [Abu Dhabi Stock Exchange and Dubai Financial Market] during the period between 2011 and 2013 were used in the current study. A composite measure of four proxies has been used to measure the AC effectiveness, namely, AC size, independence, financial expertise and diligence. To test the hypotheses formulated for the study, a logistic regression model was used to identify the influence of a set of board characteristics and ownership structure variables on the effectiveness of the AC after controlling for firm size, auditor type, industry type and profitability. Findings While AC effectiveness appeared to be positively associated with board size and board independence, it is negatively associated with CEO duality. This points to a complementary governance relation. On the other hand, the negative relationship between AC effectiveness and each of institutional and government ownership suggests substitutive relations. Research limitations/implications The main shortcoming of the current study is that it examines the influence of a certain set of corporate governance factors on the effectiveness of AC. Other corporate governance mechanisms may, however, contribute to the effectiveness of AC. The findings of the study can be used by companies’ managements and regulators in the UAE to improve the corporate governance system. Originality/value To the best of researchers’ knowledge, this study provides the first evidence about the interaction among multiple governance mechanisms required by the code of corporate governance issued by the UAE Ministry of Economy in 2009. The current paper is expected to add to the limited AC literature in Middle East and North African countries in general and Arab World in particular.

scholarly journals The relationship between corporate governance and financial performance of small corporations in Australia

2014 ◽  
Vol 9 (2) ◽  
Author(s):  
Yongqiang Li ◽  
Anona Armstrong ◽  
Andrew Clarke
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Structural Equation ◽  
Small Firms ◽  
Negative Impact ◽  
Governance Mechanisms ◽  
Latent Constructs ◽  
Equation Modelling ◽  
Corporate Governance Mechanisms ◽  
The Relationship

This paper examines a widely explored but yet to be confirmed relationship between two latent constructs - corporate governance and financial performance of small corporations in Australia. Prior studies have either focused on larger organisations or isolated corporate governance mechanisms in small firms. However, few have examined how corporate governance mechanisms, as a bundle, relate to small corporations. This study fills this gap by empirically analysing the aforementioned relationship using Structural Equation Modelling (SEM). Based on 387 responses from small corporations, the results show that corporate governance bundles measured by the extant literature, has a negative impact on the financial performance of small corporations. The result calls for a stakeholder approach to the governance needs of small corporations.

Ownership structure and audit committee effectiveness: evidence from top GCC capitalized firms

2019 ◽  
Vol 12 (3) ◽  
pp. 407-425 ◽  
Author(s):  
Mahfoudh Abdulkarem Al-Musali ◽  
Mohammed Helmi Qeshta ◽  
Mohamed Ali Al-Attafi ◽  
Abood Mohammad Al-Ebel
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Ordinary Least Squares ◽  
Annual Reports ◽  
Least Squares Regression ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship ◽  
Ownership Types

PurposeThe purpose of this study is to report on the level of audit committee (AC) effectiveness on the top capitalized firms in GCC countries and to empirically investigate the hypothesized influence of ownership types on the level of AC effectiveness.Design/methodology/approachThe empirical data were drawn from annual reports of 119 top listed firms in Gulf Co-operation Council (GCC) nations at the end of 2011. Ordinary least squares regression analysis was constructed to examine the relationships between ownership types and the level of AC effectiveness.FindingsThe findings revealed that family, government and institutional ownership, in addition to board independence, all have significant positive association with AC effectiveness, and they serve as a complement to AC effectiveness.Research limitations/implicationsThe findings of the study are important for policy makers and regulators as they could use them to understand the relationship between different corporate governance mechanisms and formulating best strategies that would help them to improve and adopt an optimal governance system constituted from interacting governance mechanisms.Originality/valueThis study is one of few that have examined the interaction between different corporate governance mechanisms. It provides insights about the relationship between AC effectiveness and other governance mechanisms in the GCC context.

Audit committee versus other governance mechanisms and the effect of investment opportunities: evidence from Palestine

2020 ◽  
Vol 20 (3) ◽  
pp. 527-544 ◽  
Author(s):  
Islam Abdeljawad ◽  
Ghassan A.I. Oweidat ◽  
Norman Mohd Saleh
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Audit Quality ◽  
Valuable Insight ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Investment Opportunities ◽  
The Relationship

Purpose This paper aims to explore how the presence of an audit committee is associated with other corporate governance mechanisms, i.e. board structure, ownership structure and quality of external audit. The present study evaluated whether the presence of the audit committee complements or substitutes other governance mechanisms in Palestinian companies. Moreover, the effect of investment opportunities on the relationship between the formation of the audit committee and the quality of the auditor was addressed. Design/methodology/approach The association between the formation of the audit committee and other governance variables was modelled as a binary logistic model. The sample comprising 44 firms listed on Palestine exchange for the period between 2013 and 2017, amounting to 220 firm-year observations. Findings Based on the investigation, the results have indicated that board independence, the distinction between the chairman and chief executive officer function, ownership concentration and audit quality enhance the chance of audit committee formation, implying complementary effect. Contrastingly, board size and board ownership serve as a substitute to audit committee formation. It has also been found that investment opportunities act as an effective moderating factor that strengthens the relationship between audit quality and the formation of the audit committee. Originality/value The study provides valuable insight into the interaction between multiple corporate governance mechanisms within the economy of Palestine where the external uncertainty is high and investment opportunities are constrained by the decisions of the occupying authority. The findings may help regulators and policymakers in Palestine alongside those of other countries with similar environmental features to revise and update their corporate governance codes to ensure that the best control can be achieved, subsequently attracting more foreign and domestic investments.

scholarly journals ESG disclosure and firm performance before and after IR

2020 ◽  
Vol 28 (3) ◽  
pp. 429-444 ◽  
Author(s):  
Khaldoon Albitar ◽  
Khaled Hussainey ◽  
Nasir Kolade ◽  
Ali Meftah Gerged
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Gender Diversity ◽  
Ownership Concentration ◽  
Content Type ◽  
Moderation Effect ◽  
Corporate Governance Mechanisms ◽  
Before And After ◽  
The Uk ◽  
The Relationship

Purpose This paper aims to investigate the effect of environmental, social and governance disclosure (ESGD) on firm performance (FP) before and after the introduction of integrated reporting (IR) further to exploring a potential moderation effect of corporate governance mechanisms on this relationship. Design/methodology/approach Ordinary least squares and firm-fixed effects models were estimated based on data related to FTSE 350 between 2009 and 2018. The data has been mainly collected from Bloomberg and Capital IQ. This analysis was supplemented with applying a two-stage least squares (2 SLS) model to address any concerns regarding the expected occurrence of endogeneity problems. Findings The results show a positive and significant relationship between ESGD score and FP before and after 2013, among a sample of FTSE 350. Furthermore, the study is suggestive of a moderation effect of corporate governance mechanisms (i.e. ownership concentration, gender diversity and board size) on the ESGD-FP nexus. Additionally, this paper finds that firms voluntarily associated with IR have a tendency to achieve better firm financial performance. Practical implications The findings of the present study have several policy and practitioner implications. For example, managers may engage in ESGD to enhance their firms’ financial performance by the voluntary involvement in IR, which believed to help investors to rationalise their investment decisions. Likewise, the results reiterate the crucial need to integrate more social, environmental and economic regulations to promote sustainability in the UK. The paper also offers a systematic picture for policymakers in the UK as well as future researchers. Social implications The findings of this paper indicate that IR plays a significant role in the relationship between ESGD and FP, where IR firms seemed to be achieving better FP as compared with their non-IR counterparts. This implies that stakeholders may have played a magnificent effort to encourage firms’ voluntary engagement in IR in the UK. Originality/value To the best of the authors’ knowledge, this is the first study to explore the potential moderating effect of ownership concentration, gender diversity and board size on the relationship between ESGD and FP and to examine whether firms’ voluntary involvement in IR can lead to better FP after the introduction of IR in 2013 in the UK.

scholarly journals Does D&O insurance matter for stock price crash risk? Evidence from an Asian emerging market

2019 ◽  
Vol 3 (1) ◽  
pp. 34-46
Author(s):  
Ming-Te Lee ◽  
Kai-Ting Nien
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Emerging Market ◽  
Insurance Coverage ◽  
Crash Risk ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

Purpose The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk. Findings The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk. Originality/value Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.

scholarly journals An Empirical Study on Corporate Governance and Islamic Bank Performance

2016 ◽  
Vol 5 (4) ◽  
pp. 01-09
Author(s):  
Sarwar Uddin Ahmed ◽  
Wali Ullah ◽  
Samiul Parvez Ahmed ◽  
Ashikur Rahman
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Time Series Data ◽  
Stock Exchange ◽  
Series Data ◽  
Islamic Banks ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
And Performance ◽  
The Relationship

Corporate governance refers to the relationship present between the corporation and the stakeholders that determines and controls the strategic direction and performance of the corporation. Good corporate governance should provide adequate incentives for the board and management to pursue objectives that are in the interests of the company and shareholders, thereby encouraging firms to use resources more efficiently. However, the definition of accountability differs between conventional and Islamic Banks. Islam was made accountable not only to stakeholders, but also to Allah, the ultimate owner and authority. These powerful moral ethics help in promoting fair, just and honest business dealing. The aim of this study is to examine the relationship between corporate governance structures and the resultant financial performance of listed Islamic banks of Dhaka Stock Exchange (DSE) in Bangladesh. The panel time series data were collected for the time period of 6 years (2009-2014) from all the listed Islamic banks to run an Ordinary Least Squared (OLS) regression model to examine whether the existing corporate governance mechanisms as well as several other internal and external indicators are significant in influencing the financial performance. Preliminary findings suggest corporate governance mechanisms in Islamic banks are not quite as strong as they should be, hinting at possible market and management inefficiencies.

Corporate governance mechanisms and firm performance in a developing country

2020 ◽  
Vol 62 (2) ◽  
pp. 147-169 ◽  
Author(s):  
Albert Puni ◽  
Alex Anlesinya
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Governance Mechanisms ◽  
Board Size ◽  
Ceo Duality ◽  
Content Type ◽  
Board Committees ◽  
Discourse Practices ◽  
Corporate Governance Mechanisms

Purpose The purpose of this study is to examine the influence of corporate governance mechanisms recommended by the Securities and Exchange Commission (SEC) of Ghana on firm performance as measured by accounting-based ratios (return on assets, return on equity and earning per share) as well as market-based measure (Tobin’s Q) among listed Ghanaian companies from 2006 to 2018. These mechanisms are: board composition (board size, inside directors and outside directors), board committees (audit, remuneration and nomination), chief executive officer (CEO) duality/separation, board meetings and shareholder concentration. Design/methodology/approach The study used panel regression analysis of data from 38 listed firms in Ghana from 2006 to 2018 to test how each corporate governance variable initiated by the SEC of Ghana contributed to firm performance. Data were extracted from the annual reports of listed companies. Findings The study found that the presence of both insiders and outsiders on the corporate board improved financial performance. Similarly, board size, frequency of board meetings and shareholder concentration/ownership structure generally had a positive impact on financial performance. However, the presence of board committees generally had a negative impact on financial performance while CEO duality had no impact on financial performance. Practical implications The study contributes to the understanding of how good corporate governance practices affect firm performance for both academics and particularly Ghanaian policymakers. Originality/value This study provided new findings to bridge the gaps in the general corporate governance literature relative to the lack of consensus on financial impacts of corporate governance mechanisms. The finding contributes to knowledge by providing new and original evidence that some current corporate governance mechanisms are not effective in minimizing the agency problem in a developing setting. Furthermore, the authors anticipate that the outcomes of this research, which so far is the most comprehensive study in the Ghanaian context in terms of the coverage of corporate governance mechanisms specified by the SEC of Ghana, can significantly shape corporate governance discourse, practices and policies in Ghana, particularly and in other developing countries generally to improve financial performance and corporate sustainability.

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