Impact of Board Diversity on Agency Costs in the Context of Agency Theory Approach: Evidence From Listed Companies in Sri Lanka

2021 ◽  
pp. 097468622110457
Author(s):  
M. S. A. Riyad Rooly
Keyword(s):  
Corporate Governance ◽  
Sri Lanka ◽  
Best Practices ◽  
Agency Theory ◽  
Agency Costs ◽  
Theory Approach ◽  
Board Diversity ◽  
Governance Practices ◽  
The Board Of Directors ◽  
Managerial Implications

Effective corporate governance leads the way towards aligning the interest between managers and shareholders. Effectiveness of practicing the corporate governance of companies in Sri Lanka is debatable topic due to the variation between standard and actual practices. This study aims to examine the influence of board diversity on agency costs of companies listed in Sri Lanka as proposed by agency theory. The sample of this research consists of all companies listed in Sri Lanka, exclusive of bank and financial institutions which are practicing unique governance practices issued by Central Bank of Sri Lanka. The final sample consists of 180 companies during the period from 2013 to 2019. This study deployed panel regression analysis to test the relationship formulated in the hypotheses by using the EViews 9 software. The results showed that the board diversity-related variables such as separate leadership structure and presence of non-executive director on companies’ board are appeared to have significant influence on agency costs. Meanwhile, board size does not have direct impact on agency costs. The findings of this study regarding board diversity and agency costs have important managerial implications, that these findings are unlikely to the prediction of agency theory and best practices. Agency theory is not applicable to these companies, since the exiting corporate governance practices increase agency costs. The potential benefits of this study led to re-think the board of directors of the companies, managers, shareholder and the policymakers to re-organise the implementation of best practices.

Board Composition and Governance Dilemma at Magna International

2014 ◽  
Vol 3 (2) ◽  
pp. 207-220
Author(s):  
Eduardo Schiehll ◽  
Gokhan Turgut ◽  
Elise Demers
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Board Composition ◽  
Board Structure ◽  
Minority Shareholders ◽  
Board Diversity ◽  
Publicly Traded Companies ◽  
Governance Practices ◽  
The Board Of Directors ◽  
Governance Roles

The primary subject matter of this case study is board composition and the governance roles of the board of directors in publicly traded companies. It is designed to supplement a text chapter or other material on the monitoring and advisory roles of directors and how board structure and composition impact these roles. The case is also designed to allow students to identify and assess governance issues related to firm ownership structures, family-owned or controlled companies, ethical conduct of the board of directors and conflicts between majority and minority shareholders. The case is sufficiently detailed to allow discussing the multidimensional aspects of board composition (or board diversity), including gender, ethnicity, expertise, experience and prestige. It is structured as a chronological description of the controversy generated by a proposed related party transaction (a buyout transaction) designed to dismantle a dual-share capital structure that allowed the Stronach family to control the company (Magna International Inc.) with just a fraction of its equity. The case can serve as the basis for both short case assignments and class discussions. It is appropriate for undergraduate and graduate courses in strategic management, leadership, corporate governance and financial accounting. The topic is relevant and current, as it can be related to the ongoing reforms of Canadian corporate governance practices for controlling shareholders and related party transactions.

scholarly journals Diversity in the board of directors and good governance practices

2020 ◽  
Vol 9 (2) ◽  
pp. 97
Author(s):  
Álvaro Melón-Izco ◽  
Francisco J. Ruiz-Cabestre ◽  
M. Carmen Ruiz-Olalla
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Boards Of Directors ◽  
Good Governance ◽  
Gender Diversity ◽  
Positive Influence ◽  
Board Diversity ◽  
Corporate Governance Mechanisms ◽  
Governance Practices ◽  
The Board Of Directors

Motivated by the debate on the adequacy of the composition of boards of directors, we examine the effect that board diversity has on corporate governance performance in Spain, analysing gender diversity, diversity of director types and tenure diversity. The findings reveal that diverse boards of directors have a positive influence on good governance practices,improving the efficiency of corporate governance mechanisms. These results could be interesting for practitioners and regulators.

scholarly journals Corporate Governance in PT Lippo Karawaci Tbk

2012 ◽  
Vol 6 (1) ◽  
pp. 72
Author(s):  
Retno Kusumastuti ◽  
Azhar Kasim
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Agency Costs ◽  
Secondary Data ◽  
Qualitative Approach ◽  
Good Corporate Governance ◽  
Governance Practices ◽  
Agency Issues ◽  
Data Validity

When mismanagement and misuse run rampant in giant corporations, as in the case of Enron in 2001, good corporate governance becomes mandatory. From the perspective of the agency theory, the separation of capital owners and management must lead to strictly applied good corporate governance. The purpose is to eliminate any disadvantages to the corporation's objective, namely providing added values to all relevant parties. The agency theory also covers two aspects: agency issues and agency costs. The research uses the qualitative approach and data is gathered through extensive interview, secondary data, and bibliography study. Key persons among the sources are selected based on specific criteria. Data validity is obtained through the triangulation technique, and the samples used are PT Lippo Karawaci Tbk and subsidiaries. The results show that governance practices are unique in each corporation, in accordance with their characteristics.

Corporate Governance and Performance of Organizations

2018 ◽  
Vol 9 (5) ◽  
pp. 439-446
Author(s):  
Hamid Ait lemqeddem ◽  
◽  
Mounya Tomas ◽  
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Theoretical Foundation ◽  
Quantitative Approach ◽  
Governance Practices ◽  
Deductive Method ◽  
Private And Public ◽  
Is Theory ◽  
And Performance ◽  
Do So

There is renewed interest in the need to focus on corporate governance in an environment where it is a performance imperative for all small and large organizations, private and public, beginner or established.The purpose of this study is to demonstrate the place of corporate governance practices in organizations to ensure that the board, officers, and directors take action to protect shareholder interests and all stakeholders. It is important to focus on the effect of these practices on improving performance and competitiveness. To do so, we opted for the hypothetico-deductive method with a quantitative approach. Our theoretical foundation is theory is agency theory.

DHFL Meltdown: The Corporate Governance Lapses

2021 ◽  
pp. 097282012199882
Author(s):  
Daitri Tiwary ◽  
Arunaditya Sahay
Keyword(s):  
Corporate Governance ◽  
Banking Sector ◽  
Housing Finance ◽  
Shadow Banking ◽  
Share Prices ◽  
A Value ◽  
Governance Practices ◽  
The Board Of Directors ◽  
Company Sector ◽  
Financial Company

India’s non-banking financial institutions (NBFIs), broadly constituting the less-regulated shadow banking sector, have been plagued with scams, triggering a domino effect in the Indian money market. Major corporate governance issues were highlighted in NBFIs with the unfurling of the ILF&S fraud; it virtually created a sub-prime crisis. In such a scenario, where the shadow banking sector was subject to change in regulations to ensure vigilance, corporate governance lapses had again led to the meltdown of Kapil Wadhawan led Dewan Housing Finance Limited (DHFL). Registering a net profit growth of 25% in the third quarter of financial year 2017, DHFL was one of India’s leading housing finance companies with a value of whopping ₹1.01 trillion as its asset under management (AUM). The company had nose-dived from its coveted position, suffering a loss of ₹22.23 million for the last quarter of the financial year 2018–2019. The company’s credit ratings of commercial papers and non-convertible debentures were downgraded; non-payment of interests led to enforcement of resolution plan, with the board of directors acceding to nationalized banks. The company’s reputation had crashed with its share prices, amidst allegations of lookout notice issued for its promoters for siphoning funds through shell companies. The case describes the oversights and negligence of DHFL in terms of corporate governance practices in the context of the NBFC (non-banking financial company) sector. The jury is out to evaluate whether Wadhawan had followed the rules of corporate governance in letter and spirit, or the tightening noose of regulations and market sentiments around the ‘shadow banking’ sector of India spelt doom for DHFL.

scholarly journals CORPORATE GOVERNANCE THEORY AND MODEL : A CONCEPTUAL OBSERVATION

2021 ◽  
Vol 9 (12) ◽  
pp. 486-500
Author(s):  
Shailendra Mohan Singh ◽  
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Board Of Directors ◽  
Real Life ◽  
Executive Power ◽  
Theoretical Frameworks ◽  
Legal Obligations ◽  
Governance Theory ◽  
The Board Of Directors ◽  
Theory And Model

This paper outlines the conceptual, contextual and disciplinary scope of the rapidly evolving topic of corporate governance. The aim of this paper is to make a study of different theories and models of corporate governance that have been used globally by analysing strengths and weaknesses for each one. This is to determine which one is the best theory and model and if it can be adopted to different economic systems. Corporate governance theory has tended to look to this theory to guide the decisions of the board of directors in curbing excessive executive power in the hands of management. While useful for this purpose, the Agency Theory provides limited guidance on corporate governance in real life situations which are far more complex. With the blurring of the roles of the principal and the agent, the currently prevalent governance framework, based on the Agency Theory has become self limiting and ineffective. Efforts to supplement the Agency Theory with alternative theoretical frameworks such as the Stakeholder Theory and the Stewardship Theory have, at times, tended to place the board of directors in conflict with their legal obligations to work in the interests of the shareholders. A governance model based on the concept of Trusteeship, while providing fresh insights, suffers from problems in implementation and remains a goal . These alternative frameworks have, therefore, not been of much practical use to the board members in helping them to decide what constitutes the “right” decision. We need new theoretical insights that will take us towards a comprehensive theory of governance. This paper seeks to highlight the various theoretical frameworks for corporate governance.

scholarly journals Board of directors, performance and firm value in Brazilian listed state-owned enterprises

2020 ◽  
Vol 18 (2) ◽  
pp. 1
Author(s):  
Carolina Coletta ◽  
Roberto Arruda de Souza Lima
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Board Of Directors ◽  
Firm Value ◽  
Board Structure ◽  
Agency Conflicts ◽  
Governance Practices ◽  
The Board Of Directors ◽  
Structure Index ◽  
Corporate Governance Practice

<p>This paper investigates the relationship between the board of directors' structure and firm performance and the value of Brazilian listed state-owned enterprises (SOEs), from 2002 to 2017, totaling 327 observations using an unbalanced panel data with fixed and random effects regressions. The evolution of corporate governance practices adopted by the boards is presented for this period, using a Board Structure Index (BSI). The results indicate a significant positive relation between the board's structure and firm performance, measured by ROE and ROA, and firm value, measured by Tobin's <em>q</em>. These findings are consistent with corporate governance literature, in the sense that the board's role of monitoring management reduces agency conflicts. The results also show an improvement in adopting corporate governance practice on Brazilian SOEs' boards over the last decade.</p>

Bank Governance

2016 ◽  
Author(s):  
John Armour
Keyword(s):  
Adverse Effect ◽  
Corporate Governance ◽  
Financial Crisis ◽  
Executive Compensation ◽  
Agency Costs ◽  
Shareholder Primacy ◽  
Management Agency ◽  
Bank Managers ◽  
Governance Practices ◽  
Governance Tools

According to a common narrative, the failure of banks in the financial crisis reflected poor corporate governance practices, as well as inadequate prudential regulatory safeguards. Yet it turns out that the “best” governance practices according to ordinary standards were the ones that did worst during the financial crisis. In the period leading up to the financial crisis, it was believed that regulation would cause banks to internalize the costs of their activities, meaning that what maximized bank shareholders’ returns would also be in the interests of society. Consequently, large banks used the same governance tools as non-financial companies to minimize shareholder-management agency costs, namely independent boards, shareholder rights, the shareholder primacy norm, the threat of takeovers, and equity-based executive compensation. Unfortunately, such tools had the adverse effect of encouraging bank managers to take excessive risks. Consequently, a significant rethink about the way in which banks are governed is required.

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