Board Independence and the Efficacy of Social Reporting

2017 ◽  
Vol 17 (1) ◽  
pp. 25-45 ◽  
Author(s):  
Mustafa A. Dah ◽  
Mohammad I. Jizi
Keyword(s):  
Recent Decade ◽  
Governance Structure ◽  
Independent Directors ◽  
Board Independence ◽  
Corporate Boards ◽  
Future Prospects ◽  
Csr Reporting ◽  
Corporate Governance Code ◽  
Effective Discharge ◽  
And Performance

ABSTRACT The recent decade of scandals, financial crisis, and loss in moral values questioned the soundness of firms' governance structure and held them more accountable to their societies. This put corporate boards under increased pressure to acknowledge their monitoring needs and respond to societal obligations. This paper offers a deepened understanding of the CSR-firm welfare relationship by suggesting its reliance on the participation of independent directors on corporate boards. Our findings show that higher board independence increases social disclosures. We also show that the effect of social disclosure on the firm's risk and performance is favorably affected by the participation of independent directors on corporate boards. Accordingly, we demonstrate that board independence not only facilitates firms' CSR reporting, but also positively influences the CSR-firm performance association. Board independence enhances the efficacy of CSR reporting by elevating the reliability of the disclosed information and amplifying its signaling power regarding the firm's future prospects. Our empirical evidence supports the U.K. corporate governance code main principles encouraging higher board independence for effective discharge of responsibilities.

scholarly journals The Influences of Independent and Female Directors on the Use Non-Financial Measures in the Evaluation of CEO Performance in Malaysia

2019 ◽  
pp. 16-25
Keyword(s):  
Performance Evaluation ◽  
Recent Decade ◽  
Independent Directors ◽  
Cross Sectional ◽  
Business World ◽  
Financial Measures ◽  
Female Directors ◽  
Efficiency Theory ◽  
And Performance ◽  
Research Domain

CEO compensation and performance evaluation has become a highly contention issue in the business world. Several factors appear to be behind the image problem but the uppermost is the dramatic increase in CEO reward in recent decade. Wage efficiency theory argues higher compensation would increase the performance but on the evaluation of CEO performance many issues are faced in selecting performance measurement indicators. The purpose of this paper is to extend discussions in evaluating the CEO performance in research domain. Based on agency theory, the model of this research is developed. The cross-sectional data was collected by questionnaires. By applying regression model, this study revealed that independent directors and female directors on the use of non-financial measures in CEO performance evaluation, are found to be positively associated with the use of non-financial measures which reinforce the findings of prior studies in regarding their influence on the use of non-financial measures in CEO and corporate performance evaluation. The ratio of female directors on the BOD is significantly and positively associated with the use of non-financial measures in the evaluation of CEO performance. This study contributes economically, socially and politically.

scholarly journals Topical Issues in Corporate Governance Development in the Russia's Electric Power Industry

2019 ◽  
Vol 139 ◽  
pp. 01022
Author(s):  
G.I. Sheveleva
Keyword(s):  
Corporate Governance ◽  
Performance Evaluation ◽  
Electric Power ◽  
Boards Of Directors ◽  
Electric Power Industry ◽  
Social Engineering ◽  
Power Industry ◽  
Independent Directors ◽  
Corporate Governance Code ◽  
And Performance

Corporate governance in the Russian power companies is developing slowly, and its importance for increasing their investment appeal remains underestimated. In order to identify the main problems hindering such development, the assessment of corporate practices of these companies was carried out. It was performed mainly as per the criteria of the guidelines of Russia’s Bank on compliance with the principles of the Corporate Governance Code, as well as those not included in its guidelines. The results obtained were compared to those of the TopCompetence Corporate Governance Center, the Platforma Center for Social Engineering, the Center for Strategic Studies at the MGIMO University, the Corporate Governance Index of the Independent Directors Association and the HSE University. We benchmarked PJSC LUKOIL that ranks among the world's top 10 companies in terms of the total shareholder return as estimated by the Boston Consulting Group. On the basis of a generalization of all the obtained findings we delineated the topical issues of the development of corporate governance. These issues were mainly concerned with the Boards of Directors and were grouped according to the stages of their nomination, election, current operations and performance evaluation. The emphasis was put on the issues related to the adoption of new managerial technologies.

Corporate Boards and SEOs: The Effect of Certification and Monitoring

2016 ◽  
Vol 51 (3) ◽  
pp. 899-927 ◽  
Author(s):  
Miguel Ferreira ◽  
Paul Laux
Keyword(s):  
Financial Constraints ◽  
Seasoned Equity Offerings ◽  
Independent Directors ◽  
Board Independence ◽  
Corporate Boards ◽  
Positive Relation ◽  
Equity Offerings ◽  
Announcement Returns ◽  
Monitoring Costs ◽  
Positive Effect

AbstractIn a sample of underwritten seasoned equity offerings (SEOs), issuers with boards dominated by independent directors experience higher abnormal announcement returns than issuers with boards dominated by insiders. Firm size, transparency, and other governance characteristics do not explain the effect of board independence. The positive relation between board independence and SEO returns is more pronounced for firms with lower monitoring costs and more severe financial constraints. The evidence suggests that independent directors have a positive effect because of their role in controlling both shareholder–manager conflicts (monitoring the use of funds) and current–new shareholder conflicts (certification of the issue’s value).

Board independence and managerial authority

2018 ◽  
Vol 25 (3) ◽  
pp. 838-853 ◽  
Author(s):  
Mustafa Dah ◽  
Mohammad Jizi ◽  
Sadim Sbeity
Keyword(s):  
Positive Association ◽  
Managerial Compensation ◽  
Independent Directors ◽  
Board Independence ◽  
Board Structure ◽  
Corporate Boards ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Managerial Authority ◽  
Board Monitoring

Purpose The imposition of the Sarbanes Oxley (SOX) Act and the NYSE/NASDAQ regulations boosted the proportion of independent directors serving on corporate boards. For certain firms, increasing the number of independent directors may impose costs that exceed the benefits. The purpose of this paper is to examine the implications of increased independence following SOX, relative to the pre-SOX board independence benchmark, on managerial authority and entrenchment within the firm. Design/methodology/approach Data are collected from COMPUSTAT, ExecuComp, and RiskMetrics. Data are divided into two periods, pre-SOX (1996-2001) and post-SOX (2002-2006). The focus is on the sub-group of firms who were not complying with the board independence requirement prior to SOX and became compliant afterwards. Various regressions are employed to assess the implications of increased independence following SOX on managerial authority and entrenchment. Findings The appreciation in board independence post-SOX significantly inflates both managerial compensation and the likelihood of CEO duality. Also, there is a positive association between board independence and managerial entrenchment during both the pre- and post-SOX periods. Imposed board composition requirements diminished board monitoring efficiency and boosted the CEO dominance and control over the firm. Originality/value This research adds to the extant literature investigating the implications of SOX on internal monitoring and governance. The results are based on an off-equilibrium phenomenon in which companies were obliged to alter their endogenously determined board structure. Thus, regulations to improve governance could backfire as the CEO might abuse them to extract private benefits.

scholarly journals Independent directors and corporate performance: Evidence from listed firms in China

2011 ◽  
Vol 8 (3) ◽  
pp. 145-169 ◽  
Author(s):  
Harjeet Bhabra ◽  
Tiemei Li
Keyword(s):  
Firm Performance ◽  
Independent Directors ◽  
Board Independence ◽  
Corporate Boards ◽  
Minority Shareholders ◽  
Large Sample ◽  
Listed Firms ◽  
Minimum Number ◽  
Regulatory Commission ◽  
Intended Effect

In 2001, the Chinese Securities Regulatory Commission (CSRC) issued Regulation No.102 stipulating a minimum number of independent directors on corporate boards. We investigate whether the regulation had its intended effect of protecting minority shareholders and enhancing firm performance. Using a large sample of 2646 firm-year observations from 2001 to 2003, we find that both state-owned and non-state-owned firms improved their board independence significantly from the pre to the post regulation period, and firm performance significantly increased in the post regulation period for both types of firms, with the increase being greater in the case of SOE firms

Board independence and CSR reporting: pre and post analysis of JCGC 2009

2020 ◽  
Vol 62 (2) ◽  
pp. 117-138
Author(s):  
Amer Al Fadli ◽  
John Sands ◽  
Gregory Jones ◽  
Claire Beattie ◽  
Domenico Pensiero
Keyword(s):  
Developing Countries ◽  
Corporate Governance ◽  
Middle East ◽  
Least Square ◽  
Board Independence ◽  
Legitimacy Theory ◽  
Content Type ◽  
Future Studies ◽  
Csr Reporting ◽  
Corporate Governance Code

Purpose This study aims to investigate the influence of board independence on the level of corporate social responsibility (CSR) reporting in Jordan over time. The paper also compares this level of influence between the pre- and post-issuance of the Jordanian corporate governance code (JCGC) in 2009. Design/methodology/approach Longitudinal data (panel data) from all non-financial listed companies on the Amman stock exchange for the period 2006-2015 was collected and analysed. The content analysis method was used to assess the CSR reporting evident in the annual reports. An ordinary least square regression was used to investigate the relationship between board independence and the level of CSR reporting. Findings The results revealed that board independence has a positive and significant influence on the level of CSR reporting. This influence became significantly stronger post the issuance of the corporate governance code in Jordan. The findings suggest that the presence of independent directors on the board encourages companies to report additional CSR information as one of the legitimation strategies to manage the expectations of stakeholder groups. Research limitations/implications This study provides motivation for regulators and companies to continue to improve board independence effectiveness. Practical implications The study supported evidence from prior studies, conducted the developed countries, that legitimacy theory is also applicable in Jordanian companies, which is a developing country. This study contributes to the debate and findings of the literature about governance and CSR reporting, specifically in the Middle East, as well as the potential of future studies in developing countries using a legitimacy theory as the basis for their investigations and motivation. This study provides evidence to motivate regulators and companies to improve, further, board independence effectiveness. Originality/value This empirical study has explored the potential influence of board independence on the level of CSR reporting in Jordan for JCGC pre- and post-issuance, which has not been examined previously and the findings for future studies in the Middle East region and other developing countries.

Board gender diversity and firms' social engagement in the Gulf Cooperation Council (GCC) countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Jizi ◽  
Rabih Nehme ◽  
Cynthia Melhem
Keyword(s):  
Social Engagement ◽  
Generalized Least Squares ◽  
Governance Structure ◽  
Gulf Cooperation Council ◽  
Foreign Direct Investments ◽  
Corporate Boards ◽  
Female Representation ◽  
Content Type ◽  
Gcc Countries ◽  
Thomson Reuters

PurposeThe Gulf Cooperation Council (GCC) countries form a unique socioeconomic environment that makes the conclusions of the prior literature not likely to be applicable. GCC countries have huge oil reserves, yet they are aiming at reducing oil dependency through enhancing transparency, increasing foreign direct investments and reforming their governance structure. Their firms are mainly family owned and have low female representation in leadership positions. The study seeks to fill a literature gap by providing a business case supporting the call for gender diverse boards for better governance.Design/methodology/approachThe study examines a sample of GCC-listed firms for the years 2009–2018. Three measures are used to proxy for firm social engagement, namely, CSR strategy score, environmental, social and governance (ESG) disclosure score and social pillar score. To ensure whether the presence of women on board or the number of women on board is influential on social engagements, the authors use the existence of women on board and the percentage of women on board variables. Data are collected using Thomson Reuters, and generalized least squares (GLS) panel data regression is used to estimate relationships.FindingsThe authors find that female representation on GCC corporate boards is increasing, yet in a slow path. The reported results support the role of women on boards in prompting firms' social agenda and enhancing the level of sustainability reporting. The results also show that female board representation supports the implementation of climate change policy, business ethics policy and health and safety policy.Originality/valueThe paper evidence the add value of women participation on GCC corporate boards in enhancing boards' functionality and governance. The empirical findings encourage firms and policymakers in the GCC countries to increase the share of females on corporate boards to improve firms' citizenship and facilitate attracting foreign investors.

Board characteristics and the choice between sustainability and integrated reporting: a European analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Laura Girella ◽  
Stefano Zambon ◽  
Paola Rossi
Keyword(s):  
Sustainable Development ◽  
Voluntary Disclosure ◽  
Sustainability Reporting ◽  
Board Independence ◽  
Corporate Boards ◽  
Integrated Reporting ◽  
Content Type ◽  
Moderating Variables ◽  
Board Characteristics ◽  
Sustainability Report

Purpose The role that the board can have in influencing the adoption of non-financial reporting (NFR) by companies is a topic that has raised interest in the recent literature. However, very few have so far been said on the logic that underpins the selection by corporate boards of a particular model (sustainability and/or integrated). This study aims to examine if and to what extent board characteristics may influence the choice of companies to voluntarily publish a sustainability report, an integrated report or both of them, and if moderating variables, relating to incentives towards corporate transparency, may have an influence. Both of these types of reporting tools are in fact aimed at improving company disclosure towards sustainable development. Design/methodology/approach Through a multi-nomial regression analysis, this study tests the assumptions in a sample of companies listed on the Eurostoxx600 that adopt integrated or sustainability reporting or both of them for the period 2015–2018 for a total of 2,103 firm-years observations. Findings The results reveal that sustainability reporting is associated with board independence only, whilst the adoption of integrated reporting is influenced by board size and board independence. The same two variables influence also those companies that jointly adopt both sustainability and an integrated report. This confirms that integrated reporting requires more competencies and monitoring to be adopted. Furthermore, the results provide evidence that information asymmetry and financial constraints influence the decision of companies to publish the integrated report, sustainability report or both, whilst growth opportunities do not. Hence, moderating variables can have a role in explaining this association, and especially those that are related to the firm’s incentives related to the provision of financial capital by investors. Research limitations/implications This study contributes to the literature in three ways. First, it proposes an incremental analysis of the relationship between board characteristics and voluntary disclosure of integrated reporting, considering the effects of moderating variables on this association. Second, the above relationship is examined in a comparative way vis-à-vis the adoption of sustainability reporting. Third, it demonstrates that the analysis of these reporting tools can benefit from an understanding that relies on both agency and stakeholder theories, that have to be conceived somehow complementary. In terms of limitations, this study is exclusively focussed on larger European listed firms, and therefore, the findings may not be valid for small and medium firms and for companies operating outside Europe. Practical implications This study provides useful insights for managers and policymakers to better understand which are the characteristics of the board composition that can best encourage a company to pursue a reporting strategy based on sustainable development. This results to be particularly relevant and timely in the European context if the authors take into consideration the developments of the European Parliament and Commission towards the launch of a new legislative proposal on sustainable corporate governance in 2021. Originality/value The study contributes to the existing literature in two ways. First, it offers a unique perspective on the direct and indirect effects of board characteristics on the adoption of integrated and/or sustainability reports by examining it in a comparative perspective. Second, it further demonstrates that the analysis of NFR and especially integrated reporting might benefit from the adoption of multiple conceptual lenses, in this case, agency and stakeholder theories.

Does board independence constrain insider opportunism?

2020 ◽  
pp. 031289622094638
Author(s):  
Dewan Rahman ◽  
Robert Faff ◽  
Barry Oliver
Keyword(s):  
Research And Development ◽  
Insider Trading ◽  
Jel Classification ◽  
Independent Directors ◽  
Board Independence ◽  
Exogenous Shocks ◽  
Sarbanes Oxley ◽  
Trading Restrictions ◽  
The Impact ◽  
Identification Strategy

We examine whether insider opportunism is reduced by board independence. Using a sample of 18,194 firm-year observations over the period 1996–2016, we show that board independence constrains opportunistic insider trading. Our identification strategy uses the Sarbanes–Oxley Act of 2002 (SOX Act) and associated changes to the listing rules of NYSE/NASDAQ as a source of exogenous shocks in board independence. Our results are economically significant as insider opportunism declines by about 10.5%. We find that insider trading restrictions is the channel through which board independence reduces insider opportunism. Our additional analyses show that in competitive and R&D (research and development) intensive firms, the impact of board independence on opportunism is less pronounced. We also find that board independence constrains opportunism only in less complex firms. However, in co-opted boards, independent directors are less effective. Overall, we support the monitoring channel of board independence for reducing insider opportunism. JEL Classification: G14, G34, G40

Board Independence of Listed Companies in the US and China

2018 ◽  
Vol 9 (3) ◽  
Author(s):  
Wenge Wang
Keyword(s):  
Listed Companies ◽  
Independent Directors ◽  
Board Independence ◽  
Top Management ◽  
Access To Information ◽  
Governance Mechanism ◽  
Chinese Listed Companies ◽  
The Us ◽  
Efficiency And Effectiveness

Abstract This article explores the board independence of listed companies in the US and China – an ongoing and important issue of corporate governance concerning the true independence of independent directors from management in both countries. It aims to identify what elements have an impact on board independence and examine how these influence the independence of independent directors. Four elements, independence from management; dependence on shareholders; access to information; and incentive to monitor, may have a substantial influence on board independence and align with the in-fact independence of independent directors. This article examines how and why these four elements have an impact on the effectiveness of the role of independent directors in monitoring top management and lead to independent directors failing to be truly independent of management. To support this argument, this article also investigates the efficiency and effectiveness of independent directors serving as a governance mechanism in terms of board independence in Chinese listed companies. The aim was therefore to scrutinise whether independent directors in Chinese listed companies are truly independent from management. Based on statistics calculated on data collected from CSMAR, there appears to be little evidence that independent directors serve as a governance mechanism in monitoring top management in Chinese listed companies, which thus shows that independent directors are not independent in China. The implications arising from this article are that solutions addressing the four elements that have an impact on board independence will enable independent directors to become truly independent.

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