Board structure, ownership concentration and corporate performance: Italian evidence

This paper investigates the interplay between board-level governance characteristics, ownership concentration and firm performance in the Italian corporate landscape, which is characterized by high (though varying) degrees of ownership concentration. The empirical setting of this study is the Italian stock market and specifically a sample of non-financial firms included in FTSE MIB and mid-cap index of Milan stock exchange, spanning a five-year time period from 2011 up to 2015. We regressed an accounting proxy for firm performance, namely the return-on-asset (ROA) ratio, on several board-level governance variables and specifically board size, board independence, CEO-chairman duality and audit committee (ACD) full independence. In doing so, we also controlled for the impact of different levels of ownership concentration by partitioning the sample into firms with lower and-higher-than-median values of ownership concentration (OC). The empirical results indicate that board characteristics differently impact performance in firms with lower levels of OC compared to firms with higher OC. Specifically, in lower-OC firms, board independence and AC full independence have a negative impact, whereas CEO duality (either alone or interacted with board independence) has a positive impact on performance. Conversely, higher-OC firms benefit from a large board size and are negatively affected by AC independence, while the remaining variables are not significant. The key insight to be gained from our evidence is that the individual and interaction effects of board-level mechanisms may be contingent on the presence of other governance mechanisms (in this instance, the degree of ownership concentration). As such, this research adds to the existing literature questioning the ‘one-size-fits-all’ approach to corporate boards. In terms of practical implications, our findings support the notion that firms might consider the potential interaction and substitution effects between governance mechanisms and structure boards accordingly.

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Corporate Governance and Firm Performance of Listed Consumer Goods Companies in Nigeria

Asian Journal of Economics Business and Accounting ◽

10.9734/ajeba/2021/v21i1530478 ◽

2021 ◽

pp. 58-70

Author(s):

Mayowa Ebenezer Ariyibi ◽

Olusola Enitan Olowofela ◽

Olaiya Kehinde Isaig

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Consumer Goods ◽

Negative Impact ◽

Low Cost ◽

Cash Flows ◽

Board Independence ◽

Board Size ◽

Income Statement ◽

The Impact

We examine the impact of corporate governance on firm performance using the accounting measures based on the profitability status of the companies depending on cash flows and inflow from the income statement. In a sample of selected consumer goods companies, the study revealed that board size has positive significant effect on return on sales. Board size and board independence has positive significant effect on profit margin. It also revealed that board size and board independence negative significant effect on operating cash flow. Based on the findings, it is recommended that the organization should take cognizance of its board size since it influences the rate of turnover which is an intrinsic component of the overall performance of the organization. The organization should make sure the board size is regulated on a low-cost reduction basis so it does not induce a negative impact on the profitability status of the organization.

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The impact of VC backing on the corporate governance of Chinese IPOs

Pacific Accounting Review ◽

10.1108/par-02-2017-0015 ◽

2017 ◽

Vol 29 (3) ◽

pp. 330-355 ◽

Cited By ~ 2

Author(s):

Qing (Sophie) Wang ◽

Hamish D. Anderson ◽

Jing Chi

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Independent Directors ◽

Board Independence ◽

Board Size ◽

Content Type ◽

Shareholder Protection ◽

Political Ties ◽

The Impact ◽

Industry Experience

Purpose The purpose of this paper is to investigate how venture capital (VC) backing influences the board size and independence and how VC backing and board structure impact firm performance in China. Design/methodology/approach Using hand-collected data from 924 initial public offering (IPO) prospectuses covering the period from January 2004 to December 2012, the authors investigate the impact of VC backing on board size, board independence and firm market performance through regression analysis. A two-stage approach is also used to address the endogeneity issue. Findings The authors find robust evidence that VC-backed IPOs have more independent boards, after controlling for CEO and firm characteristics, and the potential endogeneity concerns. Furthermore, firms backed by VCs with management political ties (PTs) have more independent directors with industry relevant expertise than other firms. While no significant relationship is found between board independence and firm performance, the authors present some evidence that IPOs which have a larger percentage of independent directors with industry relevant expertise exhibit higher long-term stock returns, and VCs with management PTs also improve IPO long-run stock performance. Research limitations/implications Although VC is new in China and the Chinese capital market has relative poor corporate governance and weak minority shareholder protection, the authors find support in this paper that VC backing is valuable to IPO firms in China not only through providing funding but also by providing political ties and industry experience. However, Chinese regulatory and institutional settings have strong impact on test results and they change rapidly, so the results may not apply to other period in Chinese markets. Originality/value This paper sheds lights on the influences of VC backing on corporate governance and firm performance in a transitional and emerging economy. It discovers the value of VC investors in a transitional economy as of providing political ties and industry experience. The new definition of independent directors suggested by Suchard (2009) is first used by our paper in the Chinese context.

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Corporate Governance and Financial Performance of Nepalese Commercial Banks

PYC Nepal Journal of Management ◽

10.3126/pycnjm.v13i1.31496 ◽

2020 ◽

Vol 13 (1) ◽

pp. 40-50

Author(s):

Mohan Prasad Sapkota

Keyword(s):

Corporate Governance ◽

Financial Performance ◽

Commercial Banks ◽

Negative Impact ◽

Ownership Concentration ◽

Positive Contribution ◽

Board Meeting ◽

Board Size ◽

Leverage Ratio ◽

The Impact

This paper focuses on determining the relationship between corporate governance and financial performance of Nepalese commercial banks as well as examining the impact of corporate governance on banks performance. The sample consists of 9 commercial banks for the 10 year period of 2008/09 to 2017/18. Corporate governance is considered as leverage ratio, board meeting, board size and ownership concentration had mixed results on banks performance measured by ROE. Evidence indicates that debt ratio, net interest margin and total assets have significant positive contribution on banks performance. Board meeting and liquidity have negative impact on banks performance. However, board size and ownership concentration have no significant contribution to the firm performance.

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Influence of Board Size and Independence on Firm Performance: A Study of Indian Companies

Vikalpa The Journal for Decision Makers ◽

10.1177/0256090920070304 ◽

2007 ◽

Vol 32 (3) ◽

pp. 39-60 ◽

Cited By ~ 46

Author(s):

Ajay Kumars Garg

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Good Deal ◽

Independent Directors ◽

Board Composition ◽

Board Independence ◽

Inverse Association ◽

Board Size ◽

Minimum Number ◽

The Impact

Corporate governance issues have attracted a good deal of public interest because of their apparent importance for the economic health of corporations and society in general, especially after the plethora of corporate scams and debacles in recent times. Corporate governance issues flow from the concept of accountability and governance and assume greater significance and magnitude in the case of corporate form of organization where the ownership and management of organizations are distanced. And, it is in this context that the pivotal role played by the board of directors in maintaining an effective organization assumes much importance. A major part of the debate on corporate governance centres around board composition especially board size and independence. Various committees have mandated a minimum number of independent directors and have given guidelines on board composition. However, the relationship of board characteristics such as composition, size, and independence with performance has not yet been established. This paper addresses this question: Does the board size and independence really matter in terms of influencing firm's performance? The findings suggest that: There is an inverse association between board size and firm performance. Different proportions of board independence have dissimilar impact on firm performance. The impact of board independence on firm performance is more when the board independence is between 50 and 60 per cent. Smaller boards are more efficient than the larger ones, the board size limit of six suggested as the ideal. Independent directors have so far failed to perform their monitoring role effectively and improve the performance of the firm. The guidelines on corporate governance should take into account the ‘cross-board’ phenomenon while defining the criteria for eligibility for appointment as an independent director. Lack of training to function as independent directors and ignorance of the procedures, tasks, and responsibilities expected of them could be reasons for the independent directors' non-performance. A bad performance leads to an increase in board size, which in turn, hampers performance. Guidelines are provided for future studies to include different variables to see which board composition is suitable for different companies at different stages of life cycle.

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The Effect of IAS-24 Disclosures on Governance Mechanisms and Ownership Structures in Pakistan

Lahore Journal of Business ◽

10.35536/ljb.2016.v5.i1.a2 ◽

2016 ◽

Vol 5 (1) ◽

pp. 15-36

Author(s):

Abdul Rafay Abdul Rafay ◽

Ramla Sadiq ◽

Mobeen Ajmal

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Financial Reporting ◽

Negative Impact ◽

Positive Impact ◽

Stock Exchange ◽

Institutional Ownership ◽

Governance Mechanisms ◽

Ownership Structures ◽

The Impact

IAS-24 of the International Financial Reporting Standards focuses on the concept and disclosures of related party transactions (RPTs) for a reporting entity. This study examines the interrelationship between RPTs (as disclosed under IAS-24), agency theory, ownership structures and firm performance. Our sample includes nonfinancial companies indexed by the KSE-100 of the Pakistan Stock Exchange during 2006–15. To run the regression models, we determine the regression assumptions, normality, heteroskedasticity, autocorrelation and multicollinearity. We investigate the impact of different RPTs, including cash inflows and outflows, whereas other studies generally look at the impact of RPTs on firm performance in totality. The empirical analysis suggests that institutional ownership has a positive, significant impact on firm performance. Related party purchases have a significant, negative impact on performance, resulting in the expropriation of institutional ownership. RPTs that generate revenues have a significant, positive impact on performance, such that institutional ownership has a propping-up effect with respect to the related parties. In practice, institutional ownership leads to strong corporate governance and contributes to firm performance. While other studies find family ownership responsible for the expropriation effect, we argue that institutional ownership has a propping-up and expropriation effect on related parties. Our study also suggests that certain ownership structures lead to weaker corporate governance mechanisms, resulting in greater agency problems. This, in turn, badly affects company performance and leads to the exploitation of minority shareholders.

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Does corporate governance spillover firm performance? A study of valuation of MENA companies

Social Responsibility Journal ◽

10.1108/srj-06-2018-0157 ◽

2019 ◽

Vol 15 (5) ◽

pp. 597-620 ◽

Cited By ~ 6

Author(s):

Mahmoud Arayssi ◽

Mohammad Issam Jizi

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Financial Performance ◽

Ownership Concentration ◽

Board Independence ◽

Mena Region ◽

Board Size ◽

Content Type ◽

Governance Committee ◽

The Relationship

PurposeThe aim of the paper is to examine the association of corporate governance (CG), the firms’ characteristics and the financial performance of firms operating in the Middle East and North Africa (MENA) region after Arab Spring. The study focuses on CG, exemplified by boards’ composition and ownership structure. It also explores the possible moderating effects of environmental social and governance characteristics (ESG), leverage and size on the relationship between CG and the company’s performance.Design/methodology/approachUsing Thomson-Reuters database, a sample of 67 firms was extracted in the MENA region to measure CG and financial performance post Arab Spring from 2012 to 2016. Panel GLS regression random effects is used to quantify the relationship; robustness is checked by using several alternative regressions and specifications to the performance measure.FindingsThe results reveal that board independence (BI) is negatively correlated with firm profitability but ownership concentration and board gender diversification contribute to profits. When firms that voluntarily form a governance committee are examined, ownership is less concentrated. We obtain a stronger impact of good governance on performance in these firms: board composition, in general, and workers’ satisfaction generate more profits; and undertaking ESG activities become a more dispensable activity. The effect of board size (BS) and forming a governance committee are studied and ensuing recommendations are drawn. In addition, relevant internal control of firms’ characteristics that strongly predict firms’ market values are discussed in the context of agency and stewardship theories.Originality/valueDespite the fact that governance-performance nexus has been extensively discussed and examined, the focus of this volume of research is on western developed countries. The growing economies of the MENA countries, and the limited governance-performance literature in the MENA context have created a demand to understand the governance environment in these countries and its influence on firm’s performance. In this region where firms’ owners are mainly family members, governments and/or institutions, governance is typically weak; moreover, ownership concentration is expected to guarantee good performance, as the role of independent directors becomes ineffective. For firms where ownership is more diluted, a sound governance system should be established to replace ownership concentration, and to more efficiently monitor management, and consequently improve firm performance. Therefore, this study not only contributes a summary of the prevailing corporate structure in MENA. Moreover, it explains the settings where both the stewardship and agency theories apply in MENA firms. Some recommendation on the importance of changes to the existing governance rules are highlighted in terms of more rules requiring board independence, board gender diversity, limits on board size and establishing governance committees.

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Corporate Governance Mechanisms and Corporate Social Responsibility (CSR) in Kuwaiti Listed Firms

Asian Social Science ◽

10.5539/ass.v16n8p10 ◽

2020 ◽

Vol 16 (8) ◽

pp. 10

Author(s):

Mejbel Al-Saidi

Keyword(s):

Corporate Governance ◽

Corporate Social Responsibility ◽

Social Responsibility ◽

Ownership Concentration ◽

Governance Mechanisms ◽

Board Size ◽

Corporate Governance Mechanisms ◽

Large Shareholders ◽

Corporate Social ◽

The Impact

Firms must maintain a balance between their performance and corporate social responsibility (CSR). This study examines the relationship between corporate governance mechanisms and the CSR of firms listed on the Kuwait Stock Exchange (KSE) within the framework of agency theory. Using a sample of 86 firms in 2019, this study explored five corporate governance mechanisms (i.e., ownership concentration by large shareholders, ownership concentration by government, board size, board independence, and family directors) and five control variables (i.e., debt, firm size, firm age, profitability, and industry type). The study used the index checklist to measure CSR and found that ownership concentration by large shareholders, ownership concentration by government, and board size affect a firm’s social responsibility while other variables have no impact. This study was the first to examine the impact of corporate governance mechanisms on corporate social responsibility in Kuwait after introducing the new corporate governance rules, and the findings will help Kuwait’s government, firms, and investors evaluate the current rules and improve CSR requirements.

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PENGARUH CORPORATE GOVERNANCE TERHADAP KINERJA PERUSAHAAN KIMIA DAN FARMASI DI INDONESIA

Jurnal Manajemen dan Pemasaran Jasa ◽

10.25105/jmpj.v2i2.554 ◽

2009 ◽

Vol 2 (2) ◽

pp. 91

Author(s):

Henny Setyo Lestari ◽

Dhetoriana Permatasari

Keyword(s):

Corporate Governance ◽

Data Analysis ◽

Firm Performance ◽

Multiple Regression ◽

Stock Exchange ◽

Ownership Concentration ◽

Board Independence ◽

Board Size

This research is aimed to determine the influence of corporate governance on firm pe ormance. The sample used were 16 companies, which is divided into 8 companies in hemical sector and 8 companies in pharmaceutical, that are listed in Indonesia Stock Exchange during the period of 2004 to 2008, which were selected using purposive sa pling method. Corporate governance in this research was measured with board size , board independence, and ownership concentration While firm performance was To sured by ROA and ROE. Menthods of data analysis were using multiple regression facility. Based on the results of this research showed that there was no significant .1 influence between corporate governance (board size, board independence, and ownership concentration) on firm performance (ROA and ROE). Keywords : Corporate Governance and firm performance

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Substitution effects of internal governance mechanisms: evidence from Switzerland

Corporate Ownership and Control ◽

10.22495/cocv5i3c1p5 ◽

2008 ◽

Vol 5 (3) ◽

pp. 212-219

Author(s):

Sabina Nielsen ◽

Simon Peck ◽

Winfried Ruigrok

Keyword(s):

Negative Relationship ◽

Ownership Concentration ◽

Substitution Effects ◽

Board Independence ◽

Governance Mechanisms ◽

Governance System ◽

Internal Governance ◽

Internal Governance Mechanisms ◽

Board Monitoring ◽

High Degree

This paper explores the substitution effects among three governance mechanisms, board monitoring potential, incentives and ownership structure, in a sample of 176 publicly listed companies in Switzerland, a country characterised by bank-centred governance system and high degree of ownership concentration. Our results suggest that whereas ownership concentration per se does not substitute for monitoring by the board, shareholdings held by board and top management and presence of a shareholder on the board act as substitutes for board independence. Moreover, we found that substitution effects differ with the identity of the largest shareholder. Firms owned by financial institutions exhibit a negative relationship between board independence and shareholder representation on board, whereas in family controlled firms board and managerial ownership is the main substitute for board monitoring.

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Tata kelola perusahaan dan pengaruhnya terhadap struktur modal

Jurnal Ekonomi MODERNISASI ◽

10.21067/jem.v16i3.5060 ◽

2020 ◽

Vol 16 (3) ◽

pp. 132-143

Author(s):

Widijaya Widijaya ◽

Peny Peny

Keyword(s):

Capital Structure ◽

Firm Value ◽

Fixed Effects ◽

Audit Committee ◽

Ownership Concentration ◽

Family Ownership ◽

Board Independence ◽

Board Size ◽

Director Ownership ◽

The Impact

This research aims to determine the impact of board composition, ownership structure, and firm characteristics on the capital structure of non-financial companies listed on the Indonesia Stock Exchange. Board independence, Board size, audit committee, director tenure, ownership concentration, family ownership, and director ownership are used as independent variables in this study. Firm size, firm age, firm performance, firm risk, and agency costs are the control variables. Data were collected using the purposive sampling method with a total of 1,695 observational data that met the criteria for 5 years. The Panel regression method is used to analyze the impact of each independent variable on the dependent variable. The fixed-effects model is found to be the best regression model in this research. This study found that board size, director tenure, and family ownership had a significant negative impact on capital structure, while board independence, audit committee, ownership concentration, and director ownership did not impact significantly on capital structure. A larger board size forms strong corporate governance which leads to less risky capital structure decisions. Longer director tenure improves the decision quality of a capital structure, and family ownership helps to maintain firm value by ensuring capital structure decisions made are the best for the company. Ownership factors are encouraged in future studies such as foreign ownership, government ownership, and institutional ownership in examining the impact on capital structure.

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