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Overcoming Competitive Inertia:  Board Composition And Strategic Persistence

Overcoming Competitive Inertia: Board Composition And Strategic Persistence

While one might expect to observe more outside director weighted boards in light of the need for owner representation given the separation of ownership and control (Berle and Means 1932), the utter lack of insider- dominated boards in the broader sample, even when considering affiliated directors as more closely aligned with managerial interests, was surprising. The dominance of agency-oriented boards might be a manifestation of change in board demographics due to Sarbanes-Oxley requirements, or the preponderance of outsider directors could be a response to a dynamic environment that requires greater access to external resources afforded by network connections of the directors. Regardless of the source of an outsider-dominated board, a theoretical expectation set forth under the tenets of agency theory is that a board of this composition performs monitoring of and to some extent exerts control over the actions of the management team. While the evidence did not establish a relationship between board composition and strategic persistence, the prevalence of persistence necessary to attain significant correlations within a sample comprised almost entirely of agency-focused boards calls into question the effectiveness of the board in its monitoring role. Potential sources of this perceived ineffectiveness include the lack of will, organizational knowledge, or political power to influence the TMT, an inability to overcome organizational inertia, a belief that the firm is pursuing beneficial strategic persistence, or an inability to identify dysfunctional strategic persistence. This study did not address the fundamental difference between beneficial persistence and dysfunctional persistence, which may have adversely affected the results as an agency-oriented board might choose to allow or to pursue strategic persistence when a firm is performing well. Future inquiries into strategic persistence might benefit from the incorporation of trends of multi-period performance to better capture the effects of past performance on persistence (Anderson, Banker et al. 2003; Banker, Ciftci et al. 2008).

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Impact of Corporate Governance on Financial Institutions? Performance: A Board Composition Case

Impact of Corporate Governance on Financial Institutions? Performance: A Board Composition Case

After the act of Sarbanes-Oxley, the idea of corporate governance and its components has gained significant attention. Dah and Hurst (2016) illustrated the importance of inside directors as creating a valuable impact on the firm‟s performance. Since insiders have access to inside information on the firm, this facilitates the process of decision-making regarding firm operations. The addition of independent directors during board composition ensures a certain probability to increase the costs that are related to the coordination and problems of free riders. The idea is studied under the framework of the Sarbanes-Oxley Act (SOX) of 2002 that has provided a greater impact over the mechanism of corporate governance and financial controls. The findings showed that independent directors and their participation have significantly increased after SOX. This increase was the result of the increase in liberty provided at the expense of grey directors and insiders. It illustrated a negative relationship between the change in board composition and firm‟s performance.

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THE EFFECT OF BOARD COMPOSITION ON AUDITOR’S RISK ASSESSMENT IN NIGERIA

THE EFFECT OF BOARD COMPOSITION ON AUDITOR’S RISK ASSESSMENT IN NIGERIA

globally revised, most of which focused on board composition and structure. These revised corporate codes emphasized boardroom independence with the inclusion of independent non-executive directors in the boardroom. New inclusions in the code not only improve board oversight, but also have implications on the quality of service rendered by external auditors. Non-executive independent directors emphasize the absence of social connection between the company and this class of director (Hoitash, 2011). From the theoretical lens of audit supply, the code of auditor engagement requires an auditor in assessing client-related risk (i.e., risk of reporting and governance failures) and in designing an appropriate audit response strategy (Carcello, Hermanson, Neal & Real, 2002; Zaman, Hudaib & Haniffa, 2011). Therefore, auditors view sound corporate governance monitoring mechanisms as a sign of internal control strength; such a board can also demand for a rigorous audit (Hines, Masli, Mauldin & Peters, 2015).

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Board Composition, Monitoring and Credit Risk: Evidence from the UK Banking

Board Composition, Monitoring and Credit Risk: Evidence from the UK Banking

taking in banks and hence risk-taking behaviour of executive management can best be approached through contracting arrangement rather than legislation limiting the pay of senior managers as advocated by politicians and policy makers. Another important implication of the results of this study is that, bank CEOs have greater influence on board decisions regarding credit risk policies suggesting that the design of control and supervisory mechanisms for financial institutions should be further strengthened given the far-reaching consequences and severity of the impact of bank risk taking on a country’s economy. More specifically, our results raise an important issue of whether legislative measures should be put in place to give a quota to females on board composition given that female members on the board exert a negative and significant influence on bank risk-taking. We suggest that global initiatives appear warranted to increase female representation on the board along the lines of some continental European countries, such as Belgium, France, Italy, Norway and the Netherlands where relevant legislations have been passed to offer 30 percent of board positions to females.

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Link from Organizational Financial Performance to Reputation: The Role of Board Composition

Link from Organizational Financial Performance to Reputation: The Role of Board Composition

Besides, García-Meca and Palacio (2018) examine the effect of managerial board composition on organizational reputation, revealing that independent executives are efficient in enhancing organizational reputation, but not all of them are similarly useful. Some types of independent executives such as business experts are very helpful to organizational reputation. The findings indicate a statistically significant and positive effect of managerial board composition on organizational reputation, which recommends that a high proportion of independent executives in the managerial board will act as a related and evident sign of managerial efficiency. This affects the perceptions of stakeholders on organizational reputation. Hillman et al. (2000) categorize the administrative board into business specialists, financial experts, and community stakeholders, and then investigate the influence of managerial composition on organizational reputation. The empirical results ascertain that, the proportion of independent executives on managerial boards is significantly as well as positively linked to organizational reputation. The proficiency and experience of independent executives help settle industrial problems as well as make better business decisions. Based on the suggestions above that, the proportion of independent executives is not only influential on organizational financial performance, but also on organizational reputation; therefore, it can be recommended, ―the proportion of independent executives may moderate the causal linkage from organizational financial performance to organizational reputation‖.

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The Impact of Board Composition on the Firm’s Performance in Continental Europe

The Impact of Board Composition on the Firm’s Performance in Continental Europe

The same situation can be observed in studies of board independence-performance relationship. The mixed prior evidence makes it difficult to predict whether there will be an effect on firm performance in a presence of more or less independent directors in a board. Scholars more often found the increased firm performance in presence of more outside directors (Agrawal and Knoeber, 1996; Baysinger and Butler, 1985; Bharat and Black, 2002; Lorsch and MacIver, 1989; Mizruchi, 1983; Zahra and Pearce, 1989), yet other observations argued that independent directors are less effective due to their limited access to information (Adams and Ferrira, 2007; Harris and Raviv, 2008). The relationship between board composition and firm performance is a topic under a continuous discussion. There is an uncertainty whether there is a positive or negative causality among elements of this specific issue, as studies received contradicting results; therefore a further investigation is necessary. This research builds up on the existing literature and investigates board composition-firm performance relationship under a new context. This paper studies annual reports of 79 continental Europe- based firms during a period of 5 years. The purpose of this paper is to examine empirical validity of claims that certain configurations of board characteristics positively affect its ability to function, and consequently enhance firm’s performance. Therefore, this research paper is intended to explore the following research question:

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Board size and board composition effects on financial performance: Evidence from banking sector of Pakistan

Board size and board composition effects on financial performance: Evidence from banking sector of Pakistan

The next determinant of the corporate board is board size, which is also considered very important in governing the corporation effectively. The size of the governing board is considered a central figure in provoking coordination and communication problems faced by the board in decision making. It is revealed by the studies (e.g., Lipton and Lorsch, 1992; Jensen, 1993) that large board size initially facilitates key board functions but when the board become more diffuse, the coordination and communication problems arise and ultimately the firm performance is affected. Prudent scholars have the view that corporate board size should be not more that 8 or 9 member for all firms (e.g., Lipton and Lorsch, 1992; Jensen, 1993). The empirical toll used by these studies for the data analysis were OLS (Ordinary least square) and other panel data model such as random effect, conmen effect model were employed. However there are also studies which conclude contradictory views about the effect corporate BOD size and its influence on the firm’s financial performance. However this is not the last verdict which should be employed in all settings. A number of recent studies (Lehn et al., 2004; Boone et al., 2007; Guest, 2008) delineate that board size is subject to firm specific characteristics and the effect of board size on firm performance is determined by the firm specific variables. According to (Htay, 2012) the smaller board size is positively related to bank financially performance, measured by return on asset and return of equity. According to Htay (2012), the board size is also positively related to financial performance. The empirical tests employed in this study were, (generalized least square method) GLS. The method is used because the data taken as sample is not normally distributed and the data has either heteroscedasticity problem, autocorrelation problem or both since this method will overcome entire problem. The previous studies expounded in the literature report mixed result about the effect of board size on firm performance. Studies such as (Mak and Kusnadi, 2004; Yermack, 1996) support the view that there is a negative dependency of firm performance on board size. Their findings report that there is a negative relationship between board size and firm financial performance. The board size is also subject to many other variables such as the firm size, firm complexity and other contextual elements of the respective organization.

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Board composition and firm performance: evidence from Bangladesh

Board composition and firm performance: evidence from Bangladesh

While corporate governance reforms in Bangladesh are consistent with global reforms concerning outside independent directors (cf., CGN 2006), the Bangladeshi institutional environment lags behind. Typically owners often have significant stakes of shares and dominate the board of directors. This form of governance is known as the ownership control approach and is in contrast to corporate governance practices that make use of outside independent directors. Highly concentrated ownership and consequential board influence can have dominating features where there exists a lack of takeover regulations, an inefficient market, and transaction costs associated with takeover processes. Corporate governance in Bangladesh is not without such characteristics. In Bangladesh, an absence of a liquid capital market and other dominant control mechanisms including compensation in the form of share options, are also major features.

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Board composition, grey directors and corporate failure in the UK

Board composition, grey directors and corporate failure in the UK

Notes: (1) This figure depicts the margins of responses of the average probability of corporate failure for specific values of INED% and GNED%. We use the predictions of models (1) and (2) in Table 5 to calculate the probability of failure for each observation at fixed values of INED% and GNED%, respectively, and the observed values of the remaining covariates. We then calculate the average probability of failure by averaging the probability of failure of each observation. (2) INED%: the percentage of board members who are independent directors; GNED%: the percentage of board members who are grey directors.

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AN OVERVIEW OF CORPORATE GOVERNANCE IN INDIA

AN OVERVIEW OF CORPORATE GOVERNANCE IN INDIA

Sahu T. K. and Manna A. (2013) empirically investigated the effect of corporate board composition and board meetings on performance of 52 Indian manufacturing companies listed in Bombay Stock Exchange over a period of 5 years (2006-2011).They represented Board composition by board size, number of executive directors, board independence, and Chairman’s identity. Corporate performance is measured through Net sales, Net Profit, Return on Capital Employed, Earning per share, Tobin’s Q, Economic value added and Market value added. Multiple regression Ordinary Least Square model results indicated that board size and board meetings have a positive impact on corporate performance whereas the independence of the board and presence of non-executive chairman in the board has negative impact whereas the proportion of executive directors in the board was found insignificant

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THE RELATIONSHIP BETWEEN SELECTED CORPORATE GOVERNANCE PRINCIPLES AND FINANCIAL PERFORMANCE OF INVESTMENT BANKS IN THE NAIROBI SECURITIES EXCHANGE

THE RELATIONSHIP BETWEEN SELECTED CORPORATE GOVERNANCE PRINCIPLES AND FINANCIAL PERFORMANCE OF INVESTMENT BANKS IN THE NAIROBI SECURITIES EXCHANGE

Corporate governance is an area that has grown rapidly in the recent years as an emerging issue due to the global corporate scandals and collapse of big companies. The corporate governance principles hence adopted by any corporate entity affects the firm’s ability to respond to the content and context in which it operates and its overall performance. The purpose of this study was to assess the relationship between selected corporate governance principles on financial performance of investment banks in the Nairobi Securities Exchange Kenya. The objective of the study was to investigate the relationship between corporate governance principle aspects (board composition, CEO duality and board size principles) and financial performance of investment banks in the Nairobi Securities Exchange. The study used a descriptive research design where primary data was collected from the seven investment banks in the Nairobi Securities Exchange in Nairobi County using a questionnaire issued to the managers while secondary data was extracted from published financial statements. Statistical Packages for Social Sciences (SPSS) was used by the researcher to facilitate the analysis and interpretation of data and the results obtained were presented using tables, frequencies, graphs and charts for easy interpretation. The results indicated that the corporate governance principles (CEO duality and Board composition) had a strong negative correlation on financial performance in

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An Empirical Study on Corporate Governance Structure and Performance of Sri Lankan Listed Financial Services Companies

An Empirical Study on Corporate Governance Structure and Performance of Sri Lankan Listed Financial Services Companies

The independent variables consist of six corporate governance variables, namely board size (BSIZE), board composition (BODCOM), board leadership or role duality (DUAL), multiple directorships (MDIR), top five shareholders (TOP5), managerial shareholdings (MOWN), and four control variables, gearing (GEAR), company size (LNSA), capital expenditure (LNCAPEX), and industry type based on the classification of banking, insurance, finance and other financial service providers. The dependent variable is corporate performance and two measurements, namely Tobin’s Q (Q-Ratio) and return on assets (ROA), are considered in this study as proxies for market return and accounting return respectively and Table 3.1 explains operationalization of research variables.

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Board of Directors’ Characteristics and Tax Aggressiveness: Evidence from Jordanian Listed Firms

Board of Directors’ Characteristics and Tax Aggressiveness: Evidence from Jordanian Listed Firms

This study aims to examine the relationship between Board of Director’s characteristics and tax aggressiveness. Taxes are considered an additional cost to the firm and its shareholders because these taxes reduce the available cash flow. Firms tend to employ different tax aggressiveness techniques. Aggres- sive tax planning or strategic tax behaviors are activities generally designed to reduce tax liability that includes Tax evasion, Tax evasion and legitimate sav- ing of taxes. This study is the first in Jordan which tests the relationship be- tween Board of Director’s characteristics (Board Duality, Board Composition and Board Independence) on tax aggressiveness. Based on a sample of 140 Jordanian firms during the period 2013-2017, this study used regression analysis to examine the effect of board composition, board independence, CEO duality, return on assets (ROA) and firm size on the tax aggressiveness. The study found that there is a negative relationship between board composi- tion and board independence from one side, and the tax aggressiveness from the other side. Furthermore, the study found that there is a positive relation- ship between board duality and tax aggressiveness. Finally, both the return on assets (ROA) and the firm size variables, which were included as control va- riables, were found to be positively related to the tax aggressiveness.

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Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt?

Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt?

Several researches have highlighted the role of corporate governance in in- creasing performance or reducing cost of capital [1] [2] and [3]. The authors showed that the quality of corporate governance is likely to mitigate the deb- tholder’s risk, reducing therefore the cost of debt capital. One of the major bene- fits arising from stronger corporate governance is the growing availability of funding and access to cheaper sources of funds [4]. Bhojraj and Sengupta [5] add that companies with stronger corporate governance can get low cost debt by re- ducing default risk due to the reduced agency problems and improved monitor- ing of managerial actions. Anderson, Mansi and Reeb [4] find that the cost of debt financing of American companies is inversely related to the board inde- pendence, board size, as well as to audit committee independence, size and meeting frequency. They conclude that the bondholders consider the board and audit committee’s monitoring effectiveness as a source of greater insurance with respect to the integrity of accounting and financial numbers. Feki and Khoufi [6] also find that young members and independents boards allow a better financial information quality, lowering thus the cost of debt of French listed companies. These results were confirmed for companies listed in Tehran Stock Exchange [7] and in Muscat Securities Market [8]. Moreover, Ghouma, Ben-Nasr and Yana [9] argue that the quality of the board composition/structure as well as the dis- closure quality reduces the cost of bond financing in Canada. Adam, Mukhta- ruddin, Soraya and Yusrianti [10] show, however, that the variables of Good Corporate Governance partially and simultaneously do not have a significant ef- fect on the cost of debt of Indonesian listed companies.

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Corporate Governance, Risk Management Disclosure, and Firm Performance: A Theoretical and Empirical Review Perspective

Corporate Governance, Risk Management Disclosure, and Firm Performance: A Theoretical and Empirical Review Perspective

The purpose of this study is to empirically and theoretically review the relationship between Corporate Governance (CG), risk management, and firm performance by suggesting future research agenda in this promising area. The study suggests the use ex-post facto research design to collect data on board characteristics (board size, board composition, board meeting, and board expertise), and quantitative content analysis to collect data on risk management disclosure from the annual reports and accounts of financial service firms quoted on the Nigerian Stock Exchange (NSE). The study also proposes the use of multivariate statistics in analyzing the data to be collected. Albeit, the study did not carry out any statistically analysis, yet, the review and theoretical evidences have shown that board characteristics (board size, board composition, board meeting, and board expertise) and risk management disclosure have positive relationship with firm performance. The outcomes from literature and theoretical review will be of paramount importance to the interest of firms that sought to know how board characteristics and risk management disclosure relate to their performance. This may in a long way aid them in making various business decisions.

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Corporate Governance and Earnings Management: A Model and Empirical Investigation from Karachi Stock Exchange

Corporate Governance and Earnings Management: A Model and Empirical Investigation from Karachi Stock Exchange

There is a significant amount of literature exist on the board independence/board composition, more specifically, outside versus inside directors. Boards dominated by out- side directors have considerably better control and monitoring over managers. Outside directors not only bring a better breadth of experience but they are more independent on the managers of the firm. The board composition can play a vital role in developing the interest of shareholders and managers. The requirement of structure for corporate gover- nance in some countries like Nigeria is that the executives’ directors should be less than the outside directors on the board, and non-executives directors should be appointed on the basis of competence and experiences and are composed of independent directors. As the directors outside of the firm have no interest regarding the shareholding, so to gain and maintain their own reputation, they try to put their efforts to enhance the value of the firm. The basic proposition regarding board composition is that if the board has max- imum representation from the independent directors outside then it may affects the firm value positively which ultimately results in a lower EM.

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The Impact of Corporate Governance Variables on Non-Performing Loans of Nigerian Deposit Money Banks

The Impact of Corporate Governance Variables on Non-Performing Loans of Nigerian Deposit Money Banks

Since the number of observations is 98 with 5 independent variables and the degree of freedom is 90 (since 93 is not available in the table) with critical t-statistic based on 5% significance level equal to 1.987 and the computed t-statistic of 1.031 with probability of 0.305. This shows that the computed t-statistic is lower than the critical t-statistic. Therefore, we accept the null hypothesis. From the above analysis, it is discovered that all the explanatory variables are not statistically significant. This simply means, they have no relationship whatsoever with the Non-performing Loans of Nigerian Deposit Money Banks. Since the Corporate Governance Variables of Board Size, Board Composition, Composition of Audit Committee and Power Separation do not affect the non-performing loans of Nigerian Deposit Money Banks, it then means that other corporate governance variables such as; insider abuse, transparency and accountability, adherence to corporate governance codes and so on may affect the Nonperforming Loans of Nigerian Deposit Money Banks.

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Boards of directors : the influence of board size, leadership and composition on corporate financial performance

Boards of directors : the influence of board size, leadership and composition on corporate financial performance

Two explanations have been given to explain why board size may be related to corporate performance. The first explanation takes a resource dependence view, whereby directors are seen to link the company with resources from its environment. This role is seen to be particularly important in times of corporate decline, when the necessity for corporations to co-opt resources from their environments is inevitably heightened. Companies with smaller boards are seen as being more likely to perform poorly or fail; a small number of board members is believed to indicate an inability - or lessened ability - by a firm to co-opt resources from its environment that are necessary for survival.

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The Impact Of Deregulation On The Character Of A Firms Board

The Impact Of Deregulation On The Character Of A Firms Board

Table 3 presents summary statistics for changes in board composition. It shows the mean, median, minimum, and maximum number of directors for each of the board classifications for proxy years 1988 and 2000. These results are generated from an unbalanced panel of data. Of the 93 firms in the original sample, twenty-four were acquired over the next thirteen years, leaving 69 firms in the year 2000. Since small- and medium-sized firms were the ones acquired, the changes noted for the unbalanced panel may simply reflect differences between the firms that remain and those that were left. This possibility was checked by comparing the board characteristics of the 69 surviving firms in 1988 and 2000 using paired t-tests (not shown). The cell averages and levels of significance are almost identical to those found for the unbalanced panel. While this check suffers from a survivorship bias, it provides a robustness check of sorts for the results reported below.

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Does the composition of the board matter? On the relationship between corporate governance and value creation

Does the composition of the board matter? On the relationship between corporate governance and value creation

Finally, Gabrielssson and Huse (2004) assume that the behavior and conduct of directors can be successfully inferred from the board’s demographic characteristics. Following these authors, we turn to the sociological theory of the strengh of the weak ties. Granovetter believes that to establish links that can really have an influence on the group (in our case, on the Board of Directors), there must be a minimum of actors. A minimum number and percentage of independent members is required to influence value creation; such independent directors must have ties that allow them to exercise an influence on the board, and must be united by the common goal of making the most effective decisions. This theory allows us to understand the relevance of the personal characteristics of the independent directors and their influence on the group dynamics of the board; minority group members may encourage divergent thinking in the decision- making process.

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