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Board Composition and Shareholder Wealth: The Case of Management Buyouts
Abstract
There is an inherent conflict of interest between managers and shareholders when all or part of a public corporation is taken private and managers become major shareholders in the newly privatized firm. The role of outside directors who are independent of management is investigated to determine whether they ensure that shareholder interests are well-served. Our empirical investigation indicates that when the entire firm is taken private, abnormal returns for sellers are substantially higher for firms with boards that are dominated by independent outside directors than for firms that are not. In these transactions, the level of inside director ownership of shares is also significant in promoting shareholder wealth. For unit management buyouts, where the unit managers are seldom board members, board composition and inside director ownership appear to have no systematic effect on abnormal returns.
... De plus, nos résultats montrent que la présence d'administrateurs externes dans le conseil d'administration a un effet positif sur la performance de l'entreprise. Ce résultat rejoint les travaux Lee et al. (1992), Black et al. (2006) et Kor et al. (2008). L'existence des administrateurs indépendants favorise la protection des intérêts des actionnaires en présence d'un conflit d'agence (Lee et al., 1992). ...
... Ce résultat rejoint les travaux Lee et al. (1992), Black et al. (2006) et Kor et al. (2008). L'existence des administrateurs indépendants favorise la protection des intérêts des actionnaires en présence d'un conflit d'agence (Lee et al., 1992). De plus, Kor et al. (2008) affirment que les administrateurs externes sont généralement compétents ce qui leur permet d'agir positivement sur la performance de l'entreprise. ...
Differentiated performance and resistance of family firms to crises: Case of listed firms in Tunisia
This paper analyzes the performance of Tunisian listed family firms compared to listed non-family firms, taking into account a number of family firms’ heterogeneity criteria : the generation controlling the firm, the majority or minority share held by the owning family and family involvement in management. A sample of 28 Tunisian listed firms during the period 2007-2014 was used. The main findings show that family firms outperform non-family firms. Specifically, our results show that family ownership, the effective involvement of the owning family in management and successors’ involvement in management, increase family firm’s performance. Finally, the results support the outperformance of family firms during the economic crisis caused by the 2011 Tunisian Revolution.
... The previous literature has highlighted a wide range of mechanisms related to corporate governance, especially in research at an international level (CHANEY; FACCIO;PARSLEY, 2011;CHEN, 2016;CHOI;LEE;PARK, 2013;EL-SAYED EBAID, 2013;GUL;SRINIDHI;NG, 2011;HAZARIKA;KARPOFF;NAHATA, 2012;ISIK;JIZI et al., 2014;MACEDO;CORRAR, 2012 The effectiveness of corporate governance in overseeing the financial reporting process is essential for the preservation of investors and the confidence in capital markets. It is expected that better corporate governance mechanisms lead to a better understanding of the reliability of the company's performance by investors measured by profit (EL-SAYED EBAID, 2013). ...
... however mixed (BAUER et al., 2008;GANI;JERMIAS, 2006;LARCKER et al., 2007;STANWICK;STANWICK, 2010). A number of studies reported positive effects of corporate governance on the value of non-financial companies (e.g., LEE et al., 1992). Hutchinson (2002), for example, reported a negative association between corporate governance and company value, while Gupta et al. (2009) did not think corporate governance affects the company's value. ...
The objective of this research is to verify the level of relationship between the mechanisms of corporate governance and the performance of the companies of the public subsector, listed on BM&FBovespa. The research was based on the financial statements from 2010 to 2014, obtained on the BM&FBovespa website, resulting in a sample of 63 companies with 315 observations. In order to calculate the performance proxy of the company, the ROA was used, and for the calculation of the proxies of the corporate governance mechanisms were used for the quality of the audit, the concentration of ownership in common shares and preferred shares, participation in the levels of governance of BM&FBovespa, number of shares held by the government and number of directors in the Board, adapted from the Mollah and Zaman (2015) survey. Convergence with national and international research, the findings of the study showed that such variables as quality of profit, concentration of ownership in preferred shares, participation in governance levels and size of the Board are positively related to the performance of the company; already a concentration of ownership in common shares and number of shares held by the government are negatively related to performance. For future reference, it is recommended to expand other sectors of the market as well as to use other mechanisms of corporate governance, presented in the literature.
Keywords: Corporate Governance. Performance. Public Subsector.
Mecanismos de governança corporativa e desempenho: análise das companhias do subsetor de utilidade pública listadas na BM&FBovespa
Resumo
O objetivo da pesquisa foi o de verificar o nível de relação entre os mecanismos de governança corporativa e o desempenho das empresas do subsetor de utilidade pública, listadas na BM&FBovespa. A pesquisa teve como base os dados das demonstrações financeiras de 2010 a 2014, obtidas no sítio eletrônico da BM&FBovespa, resultando assim, em uma amostra de 63 empresas, com 315 observações. Para o cálculo da proxy de desempenho da empresa foi utilizado o ROA, e para o cálculo das proxies dos mecanismos de governança corporativa foram utilizadas a qualidade da auditoria, concentração de propriedade em ações ordinárias e em ações preferenciais, participação nos níveis de governança da BM&FBovespa, número de ações mantidas pelo governo e número de diretores no Conselho, adaptado da pesquisa de Mollah e Zaman (2015). Convergente com pesquisas nacionais e internacionais, os achados desse estudo evidenciaram que as variáveis qualidade do lucro, concentração de propriedade em ações preferenciais, participação nos níveis de governança e tamanho do Conselho são positivamente relacionados com o desempenho da empresa; já a concentração de propriedade em ações ordinárias e o número de ações mantidas pelo governo são negativamente relacionadas com o desempenho. Para pesquisas futuras, recomenda-se ampliar a outros setores do mercado bem como utilizar outros mecanismos de governança corporativa, presentes na literatura.
Palavras-chave: Governança Corporativa. Desempenho. Utilidade Pública.
... Regarding the impact of corporate governance on performance of firms, it is widely acclaimed that good corporate governance enhances a firm's performance Chung et al., 2003;Hossain et al., 2000;Lee et al., 1992;Rosenstein and Wyatt, 1990). In spite of the generally accepted notion that effective corporate governance enhances firm performance, other studies have reported negative relationship between corporate governance and firm performance ( Bathala and Rao, 1995;Hutchinson, 2002) or have not found any relationship (Park and Shin, 2003;Prevost et al., 2002;Singh and Davidson, 2003; Non-bank financial institutions profitability Young, 2003). ...
... A considerable body of literature examines the relationship between governance and firm performance. It is widely acclaimed that good corporate governance enhances a firm's performance Brickley and James, 1987;Byrd and Hickman, 1992;Chung et al., 2003;Hossain et al., 2000;Lee et al., 1992;Rosenstein and Wyatt, 1990;Weisbach, 1988). Previous empirical studies have provided the nexus between corporate governance and firm performance (Yermack, 1996;Klapper and Love, 2002;Gompers et al., 2003) with inconclusive results. ...
Purpose
This study aims to investigate the influence of corporate governance structures of non-bank financial institutions (NBFI) on their profitability.
Design/methodology/approach
The analysis is performed using data derived from the Bank of Ghana database during a nine-year period, 2006-2014. Correlated panels corrected standard errors model is used to estimate the regression equation. The study uses board size, board independence, gender diversity, CEO duality and tenure and board meetings as proxies for corporate governance. Audit committee size, independence and meetings are used as measures of audit committee activity. The study also uses the return on assets as measures of NBFI profitability.
Findings
Results of the study show that there exists positive relationship among board size, audit committee size, meetings of the audit committee and profitability. However, board composition, gender diversity, board meetings and audit committee independence show a negative relationship with NBFI performance. From the findings of the study, it is evident that there are mixed results regarding corporate governance mechanisms and profitability of Ghanaian NBFIs. The results imply that the Ghanaian NBFI industry have unique characteristics and may react differently to corporate governance structures.
Originality/value
The value of this study is in its contribution to the extant literature on corporate governance and profitability of NBFIs.
... More recently, document a U-shaped relationship between board size and Tobin's Q. Further, a large strand of literature consistently reports that stock returns are superior when outside directors hold a significant percentage of board seats (e.g., Baysinger & Butler, 1985;Brickley & James, 1987;Byrd & Hickman, 1992;Lee, Rosenstein, Rangan, &Davidson, 1992 andWyatt, 1990). We thus postulate that stronger board-related governance at dual class firms may exhibit positive valuation effects. ...
... More recently, document a U-shaped relationship between board size and Tobin's Q. Further, a large strand of literature consistently reports that stock returns are superior when outside directors hold a significant percentage of board seats (e.g., Baysinger & Butler, 1985;Brickley & James, 1987;Byrd & Hickman, 1992;Lee, Rosenstein, Rangan, &Davidson, 1992 andWyatt, 1990). We thus postulate that stronger board-related governance at dual class firms may exhibit positive valuation effects. ...
This study explores whether corporate governance at dual class firms differs from that of their single class counterparts and whether firm value at dual class firms is associated with governance. Employing a sample of 1,309 U.S. dual class firm-year observations for the period 1996-2006, we show evidence that dual class firms are more likely to employ more shareholder rights provisions while exhibiting lower board and board committee independence than single class firms. The results also show that shareholder rights increase while board provisions decrease in wedge at dual class firms. Further findings underscore that firm value at dual class firms decreases in wedge, and increases in shareholder rights and in board-related provisions, particularly in director independence. While strong board-related governance at dual class firms is significantly positively related to firm value in a multivariate setting, shareholder rights are significantly associated with firm value only in instances of the weakest board provisions. Following unification, firms employ more antitakeover provisions while strengthening their board and board committee independence.
... Most of previous studies related to the functions of the board focus on the relationship between firm performance and the characteristics of the board. Lee et al. (1992) point out those stockholders' wealth in-creases in management buyouts when outside directors are in charge. Kosnik (1987Kosnik ( , 1999 shows that outside directors reject the proposal of greenmail against on takeover. ...
The principal objective of this research study is to scrutinize and explore the influence of board of directors' characteristics such as gender diversity, education diversity, nationality, board size, and board experience have an influence on EM. The population of this study includes the financial and non-financial sectors of Pakistan Stock Exchange (PSE) which includes 559 firms. The target population of this study is comprised 14 sectors of non-financial firms of Pakistan Stock Exchange which includes 369 firms. This study examined the non-financial sectors of Pakistan Stock Exchange listed companies. This study conducted on three industries, namely, Cement industry, automobiles industry and pharmaceutical industry in Pakistan. Study sample includes 17, 18 and 43 Pakistani listed non-financial companies from Cement, automobiles and Pharmaceutical sectors respectively, during the period of 2010-2020. In this study secondary data was used. Board gender diversity and foreign directors' results are negatively significant and they play vigilant role in controlling earnings management and managers' opportunistic priorities. This result follow stewardship theory and reduce agency cost. The relationship between board education and earning management is positively significant. Board size is negatively insignificant and board experience positively insignificant. Moderating variable firm size concludes that firm size diversity has no significant effect on earning management. Firm size and gender diversity put combined significant effect on earnings management. Firm size and education diversity and firm size and foreign diversity respectively put combined positive and significant effect on earnings management. Firm size and board size and board experience respectively does not put combined significant effect on earnings management.
... Most of previous studies related to the functions of the board focus on the relationship between firm performance and the characteristics of the board. Lee et al. (1992) point out those stockholders' wealth in-creases in management buyouts when outside directors are in charge. Kosnik (1987Kosnik ( , 1999 shows that outside directors reject the proposal of greenmail against on takeover. ...
The principal objective of this research study is to scrutinize and explore the influence of board of directors' characteristics such as gender diversity, education diversity, nationality, board size, and board experience have an influence on EM. The population of this study includes the financial and non-financial sectors of Pakistan Stock Exchange (PSE) which includes 559 firms. The target population of this study is comprised 14 sectors of non-financial firms of Pakistan Stock Exchange which includes 369 firms. This study examined the non-financial sectors of Pakistan Stock Exchange listed companies. This study conducted on three industries, namely, Cement industry, automobiles industry and pharmaceutical industry in Pakistan. Study sample includes 17, 18 and 43 Pakistani listed non-financial companies from Cement, automobiles and Pharmaceutical sectors respectively, during the period of 2010-2020. In this study secondary data was used. Board gender diversity and foreign directors' results are negatively significant and they play vigilant role in controlling earnings management and managers' opportunistic priorities. This result follow stewardship theory and reduce agency cost. The relationship between board education and earning management is positively significant. Board size is negatively insignificant and board experience positively insignificant. Moderating variable firm size concludes that firm size diversity has no significant effect on earning management. Firm size and gender diversity put combined significant effect on earnings management. Firm size and education diversity and firm size and foreign diversity respectively put combined positive and significant effect on earnings management. Firm size and board size and board experience respectively does not put combined significant effect on earnings management.
... Most of previous studies related to the functions of the board focus on the relationship between firm performance and the characteristics of the board. Lee et al. (1992) point out those stockholders' wealth in-creases in management buyouts when outside directors are in charge. Kosnik (1987Kosnik ( , 1999 shows that outside directors reject the proposal of greenmail against on takeover. ...
... Lyn [14] and I. Martinez and S. Serve [18] show that owners often prefer to keep the company private when they think that market sets the risk premium unfairly. C.I. Lee et al. [19] note that there is a positive relationship between a company's chance of delisting and poor coverage of financial analysts. ...
Nowadays, the number of companies leaving the stock exchange is steadily increasing. Researchers and practitioners continue to actively discuss the reasons for voluntary delisting and explore the factors that influence the probability of it. However, the results of existing studies are heterogeneous and inconclusive, indicating the need for further research. Thispaper continues the line of research on the determinants of voluntary delisting by studying the delisting of Russian companies. Unlike previous studies, we identify and compare the factors that influence the decision to delist at different stages of the organization’s life cycle. We argue that delisting factors, although specific to each company, should remain similar for firms at the same stage of development. The company-related factors that we test include investment expenditures, profitability, stock volatility and book-to-market ratio. The study is based on a sample of 162 public Russian companies traded on the Moscow Exchange, of which 75 delisted between 2011 and 2019. The Bloomberg database was used to generate the sample of companies. Using the panel probit regression model, we found that firms with greater investment expenditures are less likely to delist at the Introduction and more likely at the Maturity and Decline stages. The results of our research also show that firm stock volatility had a positive effect on the delisting probability of Russian firms at all stages of theirlife cycle, except for the Introduction stage. Finally, we demonstrate that companies at the Introduction and Growth stages are more likely to leave the stock exchange if they have a greater book-to-market ratio. The results of our study can be used by financial analysts and academics to analyze the probability of delisting of public companies at different life cycle stages.
... Fama and Jensen (1983) argue that through supervision of management operations and activities, an independent board of directors brings more focus to firms' financial performance. Later works by Zahra and Pearce (1989), Lee et al. (1992), and MacAvoy and Millstein (1999) support the view that there is a positive link between the degree of independence among directors and company financial performance. On the contrary, when managerial power is heavily concentrated through dependent, executive directors serving in the dual role of board member -or even chair of the board -and manager, while the firm may benefit from having professional expertise and insider knowledge on the board of directors, the agency problem is exacerbated (Hermalin, 1993). ...
This study explores the relationship between audits, concentrated managerial power, and firm performance in the Chinese manufacturing industry. Analyzing 1,264 publicly listed manufacturing firms over the five-year period (2017–2021), this study provides evidence that heavily concentrated management control hurts firm performance. The finding that heavily concentrated management control hurts firm performance is consistent with existing research on emerging markets (Debnath et al., 2021). Furthermore, consistent with existing research on audits protecting shareholder interest (Beneish, 1999) and improving firm earnings (Baxter & Cotter, 2009), the results of this study demonstrate that audits have the potential to operate as a risk oversight mechanism, reducing the likelihood of concentrated management control and therefore improving firm performance overall. This role of audits in corporate governance may be especially important in China, where the protection of minority shareholder interests may be more crucial (Chen et al., 2013), and in fact, the current study shows that audits mitigate the negative effects of concentrated management control on firm performance. However, the current research also demonstrates that the effects of audits on firm performance depend critically on how audits are identified. While longer-term, more stable auditing relationships decrease the likelihood of concentrated management power and mitigate the negative impact of concentrated power on firm performance, higher auditing fees, on the contrary, are associated with more concentrated management power, exacerbating the damage concentrated power does to firm performance. The empirical results are robust when replicated using propensity score matching (PSM) and entropy balancing techniques. Overall, the results demonstrate the effectiveness of audits as a tool in corporate governance but suggest the existence of conflicts of interest in fee-based auditing, which exacerbate agency costs.
... This position is also significant as non-shareholder Directors (Fama & Jensen, 1983), acts as neutralizers in the event of conflicts between management and shareholders; thereby providing checks and balances on examining the association between board monitoring and financial performance (Chen & Jaggi, 2000;Haniffa & Cooke, 2002;Cheng & Courtenay, 2006). For positive share value, tender offer bids, and management buyout announcements, CEO's who are not shareholders have played important roles (Cotter, Shivdasani & Zenner, 1997;Brickley, Coles & Terry, 1994;Lee, Rosenstein, Rangan & Davidson, 1992;Cormier, Gordon & Magnan, 2004). These vital roles played by non-shareholder Directors have greatly aided in the economic performance of firms. ...
Corporate governance has become a great deal of concern for countries in developing economies, with the spate of corporate governance catastrophes and the need to prevent a continuation of this trend. In Nigeria, the call for an enhanced and improved corporate governance practices has seen the development of the Code of Corporate Governance 2011 and now 2018. This is why this study seeks to empirically examine the effects of corporate governance mechanisms on the economic and financial performances of listed non-financial companies in Nigeria from the perspective of board size and CEO duality. A total of 34 companies were selected at random from all sectors of the economy to represent the sample size of this study. Analyses were made for 170 observations for a 5-year period (2014-2018). The data were regressed through fixed effects robust method and the results showed among others a positive and non-significant relationship between board size and economic performance. On the other hand the result for the relationship between CEO duality and economic performance showed a direct and significant relationship. Therefore, the study recommends that corporate governance principles should be strengthened and given more priority when it comes to the administration of non-financial companies in the public sector in Nigeria.
... Table 3-9 presents the results, which do not differ notably from our previous findings, with the exception of a positive relationship between the independent variable (in which the interaction term of the REM is women directors' independence) and ROE one year ahead. This result is consistent with previous studies that indicate that independent directors have a propensity to protect shareholder wealth (Lee et al., 1992;Matolcsy et al., 2004). ...
This thesis proposes to extend the work on incentives and mitigation mechanisms of outcome management in the French context. This research has two main objectives. In the first objective, concerning incentives for earnings management, we study the effect of financial health on earnings management using very small French firms. Our results reveal that bankrupt VSBs use earnings management more to increase earnings than non-bankrupt VSBs. The extent of earnings management varies from one VSB to another. In the second objective, we study the effect of gender quotas on the extent of earnings management and firm performance. In two separate studies, we investigate the effect of gender quotas on earnings quality and the moderating effect of female managers' attributes on the causal relationship between real earnings management and future performance. Under this prism, in the first research highlights three findings emerge: gender diversity on boards of directors is significantly positively associated with earnings quality since the implementation of gender quotas; the effect of gender diversity on boards of directors on earnings quality, depends on the distance with gender quotas of firms during the transition period; and gender diversity on boards of directors improves outcome quality for low debt and high performance firms. In the third study, we find that women directors who are multi-tenured, accounting or finance experts, and independent moderate the causal link between real earnings management and future performance.
... investigated the impact of independent directors on abnormal accruals and found that firms with a larger proportion of independent directors were less likely to engage in abnormal accruals. Similarity, Brickley et al. (1987); Weisbach (1988); ; Lee et al. (1992); ; Beatriz (2008) and Cornett et al. (2009) have documented a negative association between the presence of independent directors and abnormal earnings. Xie et al. (2003) provide evidence that independent directors can constrain earnings management activities. ...
... Plusieurs études démontrent que les régimes d'actionnariat représentent un important mécanisme de contrôle qui permet d'éviter un comportement d'agent de la part des administrateurs. Les résultats de Kesner (1987), Lee et al. (1992) et Kerr et Kren (1997) suggèrent que l'actionnariat des membres du conseil, mesuré par le nombre total d'actions détenues, a un impact positif sur la performance organisationnelle. Avec un échantillon de 4874 administrateurs de 449 compagnies américaines, démontrent qu'il y a une corrélation significative entre la valeur monétaire des actions détenues par les membres externes des conseils et la performance accrue des sociétés. ...
Le but principal de cet article théorique est d’approfondir notre compréhension des relations entre les actionnaires et les administrateurs des sociétés. Plus particulièrement, nous nous proposons de bâtir une mesure composite d’indépendance des conseils d’administration qui devrait leur permettre de remplir plus adéquatement leurs responsabilités de surveillance des activités des dirigeants et de répondre aux attentes des actionnaires, notamment en matière d’amélioration de la performance organisationnelle. Le dédoublement des rôles assumés par les administrateurs, qui peuvent agir à la fois comme des principaux et des agents, nous amène à prendre en considération plusieurs caractéristiques des conseils permettant d’assurer leur indépendance par rapport à la direction. Nous croyons ainsi que la mesure composite d’indépendance des conseils est multidimensionnelle et doit être construite à partir de plusieurs variables différentes incluant non seulement des attributs structurels des conseils d’administration (ex. ratio d’administrateurs non reliés, séparation des postes, taille du conseil, distance démographique en termes d’âge et de niveau de scolarité et proportion d’administrateurs en poste avant la nomination de l’actuel PDG) mais aussi des mécanismes de rémunération des administrateurs (ex. valeur monétaire de la rémunération fixe, valeur des actions détenues par les membres du conseil et proportion de la rémunération versée en actions sur la rémunération fixe). La construction de cette mesure composite nous permettra de contribuer à l’avancement des connaissances dans le domaine de gouvernance d’entreprise de plusieurs façons. D’abord, nous pourrons comprendre quel amalgame d’attributs structurels des conseils et de mécanismes de rémunération des administrateurs permet d’optimiser la performance organisationnelle. Puis, en nous appuyant sur un cadre conceptuel élargi, nous pourrons démontrer la complémentarité de quatre théories (ex. de l’agence, institutionnelle, politique et de dépendance des ressources) pour l’exploration des questions de gouvernance sous plusieurs angles différents. Enfin, lors d’une étude empirique ultérieure, nous pourrons produire des résultats spécifiques au contexte canadien, alors que les recherches précédentes ont été menées aux États-Unis et en Angleterre, des milieux ayant des législations, des institutions et des normes de rémunération des administrateurs différentes.
... Non-executive board members may ensure board independence from management, and improve the board's objectivity and its ability to represent multiple perspectives (Michelon & Parbonetti, 2012). Board independence is expected to be positively associated with CSRP, since independent directors are relatively less subjected to pressure from managers and shareholders than other directors (Hussain et al., 2018) and their mission is to align the interests of shareholders, managers, and stakeholders (Fernandes, 2008;Hoitash, 2011;Lee, Rosenstein, Rangan, & Davidson III, 1992). Further, independent directors may successfully address stakeholders' interests by providing new resources and insights and using their contacts and business expertise (Post et al., 2015). ...
The aim of this study is twofold: to explore whether board characteristics (i.e. a sustainability committee, board independence, board diversity, and board diligence) lead to greater corporate social responsibility (CSR) performance, and to test whether CSR performance enhances firms' financial performance in the hospitality and tourism (H&T) industry. Data were collected from the Thomson Reuters Eikon database for the H&T firms listed there between 2011 and 2018. We employed panel data analysis, after which we ran robustness tests. The results indicated that having a CSR committee and female directors on the board are robust factors driving firms to show superior CSR performance in all dimensions, including environmental, social, and governance (ESG). Independent directors and directors' diligence selectively enhance the overall CSR score and individual pillars of CSR. Investigating the relationship between CSR performance and firms' financial performance did not produce a significant outcome. The findings propose a straightforward roadmap for H&T firms and policymakers to identify characteristics of CSR-friendly boards.
... Various studies revealed a positive effect of corporate governance on the value of firms (e.g., Lee, Rosenstein, Rangan, & Davidson III, 1992). Be that as it may, Hutchinson (2002) found a negative relationship between corporate governance and company value; while, Gupta, Kenndy, and Weaver (2009) demonstrated no proof that corporate governance impacts company value. ...
This study aims to investigate the impact of Good Corporate Governance (GCG) on the financial performance of sharia banking. GCG is measured by the Board of Commissioners Performance, the Board of Commissioners Composition, the Number of Audit Committees, the Board of Directors, and the Sharia Supervisory Board Performance, whereas financial performance is proxied by Return on Assets, financing risk (Non-Performing Financing), and capital (Capital Adequacy Ratio). Sharia commercial banks registered by Bank Indonesia made the sample of this study. Annual reports and GCG reports of sharia commercial banks from 2014 to 2017 are used as a data source. The study uses a panel data regression approach to analyze the data; some interesting results have been obtained. The Sharia board positively affected financial performance of Islamic banks in terms of return on assets and capital adequacy ratio, and negatively as to non-performing financing. Similarly, the board of directors had a significant impact on the financial performance of Islamic banks in the same direction as the sharia supervisory board in terms of the three components. Meanwhile, the board of commissioners had a significant and positive impact only on the return on assets of Islamic banks in Indonesia.
... The outside directors' principal role is to ratify management's decisions and monitor the implementation of those decisions (Mace 1971;Drucker 1981). Prior studies find that outside directors protect shareholders' interests by affecting firms' real decisions; for example, in the context of management buy-outs (Lee et al. 1992), adoption of poison pills (Brickley et al. 1994), target firm's response to a takeover offer (Cotter et al. 1997), firing of nonperforming CEOs (Weisbach 1988), resistance to greenmail payments (Kosnik 1987), negotiation of tender offers (Byrd and Hickman 1992), cross-border acquisitions (Masulis et al. 2012), timely response to investment opportunities (Larcker et al. 2013), and tax avoidance (Taylor and Richardson 2014). Anderson et al. (2011) find that investors place valuation premiums on heterogeneous boards of complex firms but discount the heterogeneity in boards of less complex firms. ...
Empirical evidence on the association between outside directors and firms’ voluntary disclosures is mixed and controversial. We hypothesize that the outside directors do not represent a homogeneous group of people as considered in the literature. Using hand-collected data from a sample of biotechnology firms, we find that the aforesaid association differs based on the directors’ professional backgrounds. Our results are consistent with two ideas. First, an outside director’s influence on firm disclosure policy is shaped by her professional background. Second, firms match outside directors’ professional backgrounds with their disclosure policy. We cannot distinguish between the two explanations. Yet, we make an important contribution to the literature. We show that the impact and the selection prospects of outside directors are not as uniform as previously considered in the literature. Thus, the researchers examining financial disclosures must take into account the background characteristics of all outside directors, not just of those in the audit committee. And investor bodies must consider the background characteristics of candidates in their recommendation for outside-director selection.
... By measuring board composition, governance can be quantified (Hermalin & Weisbach, 1991). Agency problems between shareholders and management can be mitigated, such as inside board members own more shares in the firm, therefore, those with more stocks is a good governance mechanism during corporate buyouts (Lee, Rosenstein, Rangan, & Davidson, 1992). Bhagat and Black (2002) found that board with high independent level did not necessarily lead to better governance. ...
... Most international evidence has shown that a firm's performance is boosted by good corporate governance (Brickley and James, 1987;Weisbach, 1988;Rosenstein and Wyatt, 1990;Byrd and Hickman, 1992;Lee et al., 1992;Brickley et al., 1994;Chung et al., 2003;Akbar et al., 2016). However, a number of studies have reported a negative impact of measures of what is considered good corporate governance on firm performance (Bathala and Rao, 1995;Hutchinson, 2002) or no significant relationship at all (Prevost et al., 2002;Park and Shin, 2003;Singh and Davidson, 2003;Young, 2003a,b;Detthamrong et al. (2017). ...
... Institutions as shareholders considered more capable in detecting errors that occur. Lee et al. (1992) If the change in current profits are not perceived benefit by the investor, the investor can liquidate their shares. Institutional investors typically have large amounts of stock, so if they liquidate its stock will affect the overall value of the stock. ...
This study has the objective to assess the "Influence of Profitability Ratios, Capital Structure and Shareholding Structure Against On Value Company (Empirical Study of Coal Mining Companies Listed on the Stock Exchange of Indonesia Year 2011-2013)" The analysis technique used in this research is multiple linear regression and hypothesis testing using tstatistic to test the partial regression coefficient and f-statistic to test the feasibility of the research model with a 10% level of significance. It also conducted a classic assumption test including normality test, multicolinearity test, heteroscedasticity test and autocorrelation test. Based on the results of the study indicate that Profitability Return on equity positive effect on firm value. Earning pershare significant positive effect on the value of the company. The capital structure has a positive effect on firm value. institutional ownership has significant negative effect on the value of the company. Managerial ownership negatively affect the value of the company
... For example, Hermalin and Weisbach (1988) find a positive effect when shareholding is (1) less than 1% or (2) between 5% and 20% and a negative effect when shareholding is (1) between 1% and 5% or (2) over 20%. Both Lee, Rosenstein, Rangan and Davidson III (1992) and Chen and Steiner (1999) find that increased managerial ownership is related to decreased manager-shareholder agency costs, implying a positive effect on firm value. However, Demsetz and Villalonga (2001) find no relation between ownership structure and firm performance measured by Tobin"s Q. ...
The relation between firm performance and shareholding is a critical issue in corporate governance. In this paper, we examine if significant associations exist between firm performance and (1) directors’ shareholdings or (2) directors’ family shareholdings among Taiwanese listed firms. After addressing for possible endogeneity and controlling for firm specific variables, we find a positive association between executive director’s shareholding and firm performance. Consistent with incentive effect in agency theory, this result indicates that executive directors have incentive to maximize firms’ value. Also, we find that executive directors’ family shareholding is positively related to firm performance, which implies that executive directors may be motivated by their family members to improve firm value. The results also imply that the majority-minority agency problem can be mitigated when director’s family welfare is at stake. In addition, we divide research sample into subsets to accommodate the effect of mandatory independent director regulation in Taiwan since 2007.
... While some studies offer evidence that confirm a positive effect of corporate governance on non-financial firm value (e.g. Lee et al., 1992), some other studies provide a negative relationship between corporate governance and firm value (e.g. Hutchinson, 2002). ...
... Hermalin and Weisbach (1991) use board composition as a proxy for firm's governance level. Lee, Rosenstein, Rangan, and Davidson (1992) examine board members' roles in mitigating agency problems between managers and shareholders in buyout transactions. They find that when inside board members own more stocks in the firm, such agency problem will be mitigated. ...
... Dechow et al. (1996) found that firms with a large percentage of non-executive members on the board are less likely to receive accounting enforcement actions by the US securities exchange commission (SEC). Lee et al. (1992) and Klein (2002) found evidence supporting a negative relationship between independent directors and EM. Alzoubi (2016) found a negative and significant relationship between board independence and EM in Jordan. ...
Purpose
The purpose of this paper is to examine whether compliance with corporate governance (CG) requirements has constrained earnings management (EM) for companies listed in Kenya and Tanzania.
Design/methodology/approach
The sample comprises of 48 companies listed on the Nairobi Stock Exchange and the Dar es Salaam Stock Exchange. The data are collected from annual reports over the period 2005-2014, a total of 480 firm-year observations. Panel data models are used in the analyses.
Findings
The results show that discretionary accruals (DAs) average about 11.3 per cent, whereas audit quality is negatively and significantly related to DAs. However, board independence, board gender diversity and director share ownership were positively and significantly related to DAs suggesting that CG may not have constrained EM in eastern Africa.
Research limitations/implications
The findings should be understood within the context that only annual reports and audited financial statements that were filed with Capital Markets Authority (Kenya) and Capital Markets and Securities Authority (Tanzania) are used as source of information.
Originality/value
The study potentially contributes in three main ways. First, this is the first cross-country analysis that has examined the effect of CG structures on EM in an African context. Second, literature on CG and EM has been extended. Finally, the authors have extended research by observing the limitations of CG in reducing EM in an environment that is experiencing weaknesses in CG structures.
... Also, Lee et. all [20] observed in their study that stockholder wealth increases in management buyouts when outside directors are in charge. Beasley [1] concluded that the probability of financial fraud is reduced when a firm has outside directors and an audit committee. ...
The objective of this work is to offer contributions to improve the understanding of related party transactions. Our goal is to explore the role of related party transactions from the perspective of company�s corporate governance environment. Even though there is a growing interest in related party transactions, there is little academic literature to understand the nature of related party transactions and their economic consequences. Our study was conducted on a sample of 40 companies listed companies on Bucharest Stock Exchange activating in manuafacuring sector. Our objective was to analyse the way the companies follow the requirements of transparency of related party transaction. Based on our observations on companies� financial reports and companies web-sites, the level of transparency between these companies was reflected by an index estimated from producers� scores on Likert-type scales (one to five) that showed to what extent they disclose or not disclose information such as relationship between parents and subsidiaries, key management personnel compensation, the value of transactions with related parties or separate disclosure for the group entities.
... Greater proportion of outside directors helps in monitoring the conflict of interest between shareholders and managers according to the agency theory (Jensen and Meckling 1976;Fama and Jensen 1983;Shleifer and Vishny 1997). Firms with additional outside directors perform better (Baysinger and Butler 1985;Lee et al. 1992) and are likely to decrease consumption of perquisites (Brickley and James 1987). Further, outside directors were more likely to be inducted following poor performance or firm exits from industry, indicating that outside guidance is desirable in times of strategic realignment (Weisbach 1988). ...
Abstract Firms play a key role in growth of India, and there is a need to enhance their competitiveness significantly. For that, they may need higher flexibility in their governance systems. This paper explores the relationship between flexibility in corporate governance (CG) mechanisms and international competitiveness (IC) in two knowledge-based industries in India during the period from 2006 to 2014. Using multiple regression model, the results suggest that flexibility in CG significantly affects IC. In addition, IC increases with the increase in firm size in the presence of other factors such as research and development
intensity, marketing intensity, business group affiliation, and industry dummy. Thus, the study is a novel
attempt to establish the relationship between flexibility in CG and IC.
Keywords: Corporate governance, Flexibility in corporate governance, Innovation for export competitiveness,
Knowledge-based industries, R&D intensity, Marketing intensity
JEL Classification: G34 F14
... Several literature on corporate governance have been observed the relationship between corporate governance and firm performance. Some of them are state that the quality corporate governance system upgrade the firm performance (Brickley & James, 1987;Weisbach, 1988;Byrd & Hickman, 1992;Lee et al. 1992;Brickley et al.,1994;Hossain et al., 2000;Chung et al. 2003;Beiner et al., 2004;Brown & Caylor, 2006;Black et al., 2006). On the other hand, some literature has stated that there is a negative relationship between corporate governance and firm performance (Bathala & Rao, 1995;Hutchinson, 2002;Bauer, Guenster, & Otten, 2004). ...
... With respect to independence, ample empirical evidence supports the view that non-executive directors are more effective in monitoring the management team than executive directors (Lee et al. 1992;Bedard and Johnstone 2004;Coles et al. 2008). Concerning the frequency of meetings, Vafeas (1999) argues that a board which meets more frequently is more likely to perform duties in accordance with stockholders' interests. ...
The study reported herein examines the impact of two central corporate governance mechanisms (internal audit function quality and board of directors’ quality) on the incidence of earnings management. Unlike most prior studies in the area, focused mainly on US firms, this study looks at European firms that are cross-listed in the US and covers a long time span – before and after major changes were implemented in corporate governance policies (Sarbanes-Oxley Act in the US and the 8th Company Law Directive in the European Union). Using novel and comprehensive measurement approaches for internal audit function quality and board of directors’ quality, we find that both mechanisms have a negative direct effect on the incidence of earnings management, while their interactive effect is positive. A longitudinal analysis of both mechanisms also reveals that internal audit function quality and the quality of boards of directors have increased significantly since the policy changes.
... A few reviews (Lee et al., 1992;Gompers et al., 2003) have demonstrated that great administration hones have driven the critical increment in firm execution, higher efficiency and lower danger of orderly money related disappointment for nations. ...
The reason for this review tried to look at the performance of Sunway Real Estate Investment Trust (REIT) with particular risk variables and macroeconomic component on productivity execution. The information is acquired from annual report of Sunway REIT from year 2011-2015. The estimation of liquidity proportion and working proportion used to see the general execution of Sunway REIT in 5 years which supposedly past benchmark. To see the relationship of dangers variables to the benefit, this paper is using profitability ratio which include return on assets, return on equity, and return on investment, liquidity ratio that consists of current ratio. The activity ratio, it is calculated based on total asset turnover and the leverage ratio using the debt ratio. There are also GDP and inflation stated. There are few types of risk which are credit risk, liquidity risk and market risk. The study is to find the relationship between the corporate governance and risk performance as well as to the company performance and profit.
... A notable number of academic papers investigate the links between CG mechanisms and firm performance in non-financial institutions (Weir et al., 2002;Stanwick and Stanwick, 2010) providing however, controversial empirical results (Gani and Jermias, 2006;Larcker et al., 2007;Bauer et al., 2008;Stanwick and Stanwick, 2010). A part of the relevant literature supports the positive effect of various CG measures on the performance of non-financial firms (Lee et al., 1992). On the contrary, other studies, such as of Hutchinson (2002) concludes that a negative relation exists between CG and firm value, while others support the absence of significant relations between CG mechanisms and firm performance (e.g., Gupta et al., 2009). ...
The recent financial crisis has heightened the research interest worldwide in the relationship between various corporate governance (CG) mechanisms and firm performance. Nevertheless, few published papers focus on investigating this nexus for the case of the banking industry. This study is the first that empirically assesses the impact of board structure on bank performance for the case of Greek banks using a variety of econometric methodologies. Exhaustive empirical findings are presented based on a sample of 13 Greek banks and for a period of severe sovereign debt crisis (2008-2014). Empirical findings support an inverted U-shaped relation between board size and bank performance and between the proportion of independent board members and performance of Greek banks. All empirical findings are generated after we control for mergers and acquisitions activity, bank size and capital adequacy of each bank. Overall, our results document the positive contribution of the implemented CG regulatory framework on the Greek bank value.
... A plethora of studies have measured the influence of corporate governance mechanisms on firm performance which reveal that well-governed firms perform better and have higher market values (see for example Brickley et al., 1994;Agrawal and Kneober, 1996;Hossain, Cahan and Adams, 2000;Lee, Rosenstein, Rangan and Davidson, 1992;Bauer et al., 2003, Abdallah andIsmail, 2016;Curi, Gedvilas and Lozano-Vivas, 2016). Agrawal and Knoeber (1996) claim that a study conducted by McKinsey and Company on over 200 Institutional Investors revealed that 80 per cent of respondents were willing to pay a higher premium for wellgoverned companies. ...
Government linked companies (GLCs) play a unique role in the Malaysian public sector and are perceived to be the key drivers of the economy wielding influence in the financial market. This study investigates the impact of an important governance mechanism, i.e. the board of directors on performance of 32 Malaysian listed GLCs for the period 2008 to 2013. The board attributes examined include board size, board structure, board independence, board competence, board meetings and directors’ equity ownership. The three proxies of financial performance employed are return on assets (ROA), return on equity (ROE) and earnings per share (EPS) with firm size and leverage being used as control variables. We find board size to have a positive but insignificant relationship with ROA whilst board structure, board independence and board competence indicate a positive relationship with ROE. Board competence also shows a positive relationship with EPS. However, board independence and directors equity ownership report a significant inverse relationship with ROA. A possible explanation is that independence and controlling stake of the board could not influence board strategy formulation and business decisions as government maintains full authority and final say on matters. Overall, the study contributes to the growing body of literature especially relating to Government linked companies.
The main purpose of this study is to provide further insights into the potential influence of a number of internal and external governance mechanisms in constraining earnings management and determining the agency costs level. In addition, this study attempts to enhance the understanding of a number of issues relating to ownership structure and corporate governance in an emerging country setting. The international corporate collapse and accounting scandals surrounding some prominent large companies (e.g. Enron, Xerox, World.com, HealthSouth, Tyco, Waste management, RiteAid and Subeam) raised concern about the effectiveness of different monitoring devices that protect investors’ interests. The majority of failures have resulted, in part, from accounting manipulation and dereliction of efficient corporate governance mechanisms that control the opportunistic behaviour of management. This study argues that agency conflicts within a firm are considered to be among the influential sources of earnings management activities. In emerging countries with highly concentrated ownership, the prevalence of agency conflicts is more likely to lie mainly between controlling and minority shareholders rather than between managers and outside shareholders. Such conflicts, combined with the weak legal protection of minority shareholders and the flexibility inherent in accounting choices, are likely to induce managers to manipulate the reported earnings and adopt a range of activities that might be contrary to minority stockholders’ interests. Using an original data set for a sample of Egyptian listed firms, the findings of the empirical analyses are in agreement with this argument. It is shown that corporate governance mechanisms do not work in isolation, but they interact to effectively curb earnings management and alleviate different agency conflicts. It is also shown that firm-specific characteristics (e.g., growth opportunities) play a crucial role in understanding the conditional role of such mechanisms and other governance mechanisms, such as dividends and short debt, may help resolve corporate agency problems.
The independent director system is an effective corporate governance system under the unit corporate governance model. This system originated in the United States. Due to the high separation of corporate ownership and control, the problem of “insider control” will harm the interests of shareholders. And this system just enables independent directors to play a role of supervision and checks and balances on the company’s board of directors. After China introduced the independent director system at the beginning of the 21st century, due to the different economic and political backgrounds, capital market development, and corporate governance model of the United States, some problems will inevitably arise in the operation of this system in China. The “astronomical price” compensation borne by the company’s independent directors in the financial fraud case of Kangmei Pharmaceutical Co., Ltd., and the introduction of a certain degree of independent director resignation after the case, analyze the current status of the independent director system in China. Comparing the system differences between China and the United States points out the problems and reasons for China’s independent director system, and puts forward relevant suggestions for improving China's system based on the actual situation.
The topic of this dissertation was to establish the major causes of accidents in Zimbabwe and find out way forward. The research objectives included to establish the leading causes of road traffic accidents in the country. To examine approaches that can be adopted to reduce road accident sin Zimbabwe. Some of the research questions included what are the leading causes of accidents? What roles do different stakeholders play in reducing road traffic accidents in Zimbabwe. This study is important to various stakeholders in Zimbabwe which include government, Traffic safety Council of Zimbabwe, all road users. The researcher used mixed approaches in dealing with this challenge. Furthermore, purposive sampling was used in sampling respondents as well as random sampling for drivers. Data was collected using questionnaires and interviews. The major findings from this study shows the most accident s are caused by human error which include unlicensed driving, texting, alcohol consumption and driving while driving. In addition, failure to observe road regulations have been another major worry. The second major cause was the state of the vehicle. Most of the vehicles are not mechanically safe to be in the roads. The conclusions derived from the study are that all these factors have caused numerous deaths in the roads and it has become a major cost to insurance companies. State of the various roads is a major challenge to motorists and some roads are full of potholes which makes it dangers for motorists to drive through. In view of this, the study recommends that TSCZ besides awareness campaigns should take all drivers especially those of PSV through defensive course at the governments cost. This will give them appreciation of how to sustain road traffic safety for the public. There is need for more VID and police presence in major highways to check vehicles roadworthiness and state of drivers at any given point. Finally, government to work with all the stakeholders in the area of road traffic safety in order to come up with a lasting solution to road traffic accidents.
We investigate how board busyness affects corporate payout policies. We find that board busyness increases the propensity and the level of cash distribution to shareholders. The likelihood and the level of share repurchases increase with inside director busyness, while the propensity to pay dividends and the level of dividends increase with independent director busyness. Further analysis shows that SOX and the Jobs and Growth Tax Relief Reconciliation Act do not alter the positive association between busy independent directors and the likelihood of paying dividends, nor do these regulations change busy inside directors’ preference for repurchases.
This paper empirically examines the nexuses between SMEs governance mechanisms [board size (BS), board composition (BC), chief executive officer duality (CEOD), chief executive officer tenure (CEOT), board meetings (BMET), gender diversity (GEND), firm size (SZ) and firm age (AGE)] and business performance (BP) [ROA and Tobin’s Q]. The study deployed panel data multivariate regression via fixed effect for its analysis. By using annual reports of 124 Ghanaian SMEs selected on the basis of data availability, covering 2010-2019, the paper explored SMEs governance-performance-connexion by following the methodologies of researchers/scholars in extant literature. Findings/Results indicates that, there exists positive relationships among CEOT, BMET, SZ and AGE and BP. Nevertheless, BS, BC, CEOD and GEND depicted negative relationships with BP. Findings showed there are mixed results vis-à-vis governance mechanisms and BP. Findings further connote that; Ghanaian SME sector have distinctive attributes and may respond differently to governance mechanisms. Stakeholders will be abreast of the happenings in the Ghanaian SME sector for improved governance mechanisms. This paper contributes to the body of knowledge in extant literature on corporate governance and BP in the SME sector from an emerging economy’s perspective.
The purpose from this study was to examine the influence of characteristics the Board of Commissioners and Board of Directors on the performance of BUMN in Indonesia. The population in this study is 17 state-owned company of go public corporate state in Indonesia during 2007-2009. This study uses literature study. To test the effect of characteristics Board of Commissioners and Board of Directors on the performance of BUMN in Indonesia used multiple linear regression model. The results showed that the characteristics the Board of Commissionersas the size of the board of commissioners and board of commissioners gender affect the performance of state, while the commissioners educational background and experience of the board of commissioners has no effect on theperformance BUMN in Indonesia. Characteristics such as the size of Board of Directors, directors of educational background, gender and experience of the board of directors there's all is haven't effect on the performance of BUMN in Indonesia.
The board of directors plays a crucial role as an internal structure of corporate governance. Certainly, its efficiency is needy on the existence of numerous issues; the greatest significance is correlated to its characteristics that relay principally to the individuality of its memberships, board dimension, combining the purposes of pronouncement and regulator as well the grade of the individuality of the audit board and the diverse gender of the committee. To assess the authenticity of our assumptions, which stipulate the presence of deterministic characteristics of the committee on the profitability of Tunisian banks, we evaluated by three different ratios i.e., ROA (return on asset), ROE (return on equity), and MP (market performance); and we estimate three models with linear regressions. The empirical findings were performed on a data sample composed of 11 Tunisian banks listed on the Stock Exchange of Tunisia (SET) during the period from 1999 to 2018. From the estimated regressions, we find a satisfactory outcome indicating the significance of the influence of the characteristics of the committee on the banking performance in Tunisia. Then, the percentage of outside directors negatively affects the level of the financial performance of banks. The number of institutional administrators performs an essential role in improving financial performance. Finally, the duality of the Presidency of the Council General-Directorate has a negative effect on the level of stock market performance of Tunisian banks.
Research question: The study investigates the impact of family presence in the firm’s capital on the demand for audit quality. Motivation: The place occupied by family businesses in the world economy and the role of external auditors as a guarantor of the quality of financial information. Idea: Auditor choice is one of the most important decisions a firm has to make. It is an important external governance mechanism. This study shows the effect of family presence in the firm’s capital on auditor choice. Data: In the study, a data set of 257 French listed firms during 2016 has been analysed. Tools: The study proposes a quantitative model based upon a binary logistic regression. Findings: Our results support that the family ownership structure is significantly and negatively related to the choice of higher-auditor quality. These results have allowed us to conclude that French family listed firms are less likely to appoint higher quality auditors. In summary, we find that family presence negatively affects the demand for audit quality.
Purpose
The purpose of this study is to determine the effect of board effectiveness (BE) on financial performance and operational risk (OR) disclosure and the interaction effect of a bank’s Sharia Supervisory Board quality (SSB) with religious and ethical principles.
Design/methodology/approach
The data were collected from the annual financial reports of 25 Islamic banks (IBs) in the Gulf Cooperation Council countries over 2008-2017. The OR disclosure, the SSB quality and BE were measured using self-developed indices. The Tawhidi string relation methodology was used to establish the circular causal model. The moderating effect of the SSB quality on the performance, OR disclosure and board structure relationship was examined using the hierarchical regression analysis.
Findings
The main finding of this study is related to the positive moderating effect of SSB quality on the relationship between performance, OR disclosure and BE. This result seems to indicate that at a high level of SSB quality, even when the performance increase the IBs engage in complying with OR disclosure to inform the stakeholders on the real situation of the bank.
Practical implications
The finding of this research would be of great support to stakeholders and policymakers to make more pressure on IBs to improve the quality of their SSB structure and show more compliance with the governance recommendations. As an extension to this research, further study can examine other Islamic governance mechanisms such as Sharīʿah-compliant banks.
Originality/value
The present study provides a new addition to the prior literature by investigating the relationship between performance, BE, OR disclosure and the interaction effect of SSB quality. From an Islamic ethical, this research can also contribute to the growing discussion on SSB quality and performance.
This paper investigates the impact of lending conditions and undervaluation on the buyout choice and offer premiums in MBO versus LBO decisions. We control for endogeneity and self-selection using a two-stage regression model in a sample of US transactions. Firms with higher insider ownership are more likely to select an MBO, whereas easy lending conditions increase the likelihood of an LBO. Determinants of offer premiums are also significantly different. Our main conclusion is that many factors (in addition to managerial ownership) should be accounted for to better understand the sources of value creation in going private transactions.
Is there a correlation between the composition of the board of directors and the quantity and quality of information disclosed to the market, and in particular with respect to the disclosure of privileged, price-sensitive information? Our work examines this question with respect to the Italian Stock Exchange, also considering the role of minority-appointed directors in light of the Italian rules on slate voting that facilitate the election of directors by institutional investors and other minority shareholders. Based on a unique dataset of hand-picked data, we answer the basic research question in the affirmative. Independent directors and minority-appointed directors appear to have a positive impact on the amount and, to some extent, quality of disclosure, in particular if they have specific professional and educational qualifications (‘highly skilled directors’). We also tested if the market reacts to the information that is made public in order to consider the possible objection that outside directors simply require more disclosure of unimportant information. The event studies we conducted, however, indicate abnormal returns in the correspondence on the announcements we considered. The study sheds light on the role of independent and minority-appointed directors suggesting that they foster corporate transparency.
This study aims to analyze the profitability of companies before and after merger. The study of the population is the registered companies in Indonesia Stock Exchange in 2012. Having applied technical purposive sampling, finally this study has selected 7 companies as the research samples. The level of profitability of companies assessed using the Return On Asset (ROA), Return On Investment (ROI), Return On Equit (ROE), Earning Per Share (EPS). Observation period of this study is one year before and one year after merger. Statistic test used is normality one sample test. The result determined that there had not been any increasing of the ROA of the companies happened after the merger. However, the ROE, ROI and EPS had been increased.
Purpose
Following the contingency perspective, this paper aims to examine if a good corporate governance structure is able to reduce earnings management made through related party transactions. The authors expect that a high-quality corporate governance influences private benefit acquisition and reduces the positive association between related party transactions and earnings management.
Design/methodology/approach
A two-stage least squares instrumental variable approach is used to further address endogeneity concerns in this study. The model is organized into three parts: the construction of the corporate governance indicator, the first stage regression to compute the predicted corporate governance indicator and the second stage regression (ordinary least squares multivariate regressions) to analyze the relationship between related party transactions and earnings management. The analysis focuses on a sample of Italian listed companies over the period 2007-2012.
Findings
The study finds that the interaction between sales-related party transactions and corporate governance is negatively associated with abnormal accruals, signaling that corporate governance quality reduces the positive association between sales-related party transactions and earnings management, consistently with the contingency perspective.
Originality/value
The research contributes to literature by empirically testing the assumption of contingency perspective. In particular, the results provide new insights to the academic community, underlying that good corporate governance mechanism helps to reduce earnings management behavior through related party transactions.
Le principal objectif de cet article est de cerner les caractéristiques du conseil d’administration ayant un impact significatif sur la performance financière des entreprises françaises. L'analyse empirique portant sur un panel de 39 entreprises françaises cotées durant la période 2007-2013 montre que le taux de présence des administrateurs aux réunions et la présence de censeurs(s) au sein du conseil exercent un effet positif sur la performance des entreprises. Les résultats suggèrent également qu’une proportion élevée d’administrateurs étrangers ainsi qu’un nombre élevé de comités spécialisés influencent négativement la rentabilité des entreprises. Une augmentation de la proportion des administrateurs seniors aurait également une incidence négative sur la performance.
The present study endeavors to analyse the challenges independent director encounters in policing managerial conflicts of interest and in monitoring the maximization of shareholder wealth. In addition, the study ascertains the size and composition of boards and attempts to understand its relationship with financial performance. The nature of the present research primarily lends itself to a qualitative research methodology including men and women directors on boards. The processes that we sought to study were unknown at the commencement of the research. Hence, important issues, themes, and variables were to be discovered through an emergent form of research. Further, we empirically examine the impact of independent director on financial performance using multivariate regression model for 500 large listed Indian firms.
The finding identifies the inherent challenges faced by independent directors and suggests the relationship between presence of independent director and financial performance in Indian firms.
Keywords: Board Independence, Corporate Governance, Independent director challenges, India
JEL Classification: G32, G34
This paper provides an exhaustive literature review of the motives for public-to-private LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction in agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defense strategies, and corporate undervaluation. The paper then reviews and summarizes whether and how these theories have been empirically verified in the four different strands of literature in LBO research. These strands of literature are categorized by phase in the LBO transaction: Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that in the first half of the 2000s, a public-to-private LBO wave re-emerged in the US, UK and Continental Europe, whose value vastly exceeded that of the 1980s US LBO wave. Finally, the paper provides suggestions for further research.
Theory suggests that shareholders who own blocks of stock have a stronger incentive to invest in voting on corporate issues than nonblockholders. Our evidence indicates that institutional investors and other blockholders vote more actively on antitakeover amendments than nonblockholders, and opposition by institutions is greater when the proposal appears to harm shareholders. Our evidence suggests that institutions that are less subject to management influence, such as mutual funds, foundations, and public-employee pension funds, are more likely to oppose management than banks, insurance companies, and trusts, which frequently derive benefits from lines of business under management control.
This study compared the characteristics of the top management and boards of directors in large firms that have adopted golden parachutes for CEOs with those of an industry- and size-matched control group. The results indicated that firms that have experienced takeover threats are more likely to adopt golden parachutes than firms that have not. The findings also showed that firms adopting golden parachutes have relatively higher diffusion of stock ownership, higher tenure of the CEO vis-a-vis that of board members, and a higher proportion of external
This study examines the risk-adjusted stock returns realized by shareholders of firms acquired through leveraged buyouts to assess the economic gains associated with this type of acquisition. Stockholders of firms acquired through leveraged buyouts realize significant positive abnormal returns as a result of the buyout announcement. The findings support the notion of value creation in leveraged buyouts.
The impact on shareholder wealth from selling units to management is examined. The two-day announcement period average abnormal return for parent firms divesting units to managers of those units is positive (0.80 percent) and significant. On average, the impact on shareholder wealth of parent firms divesting assets to managers of the unit is similar to the shareholder wealth effect for divestiture to third parties.
This paper examines a sample of firms experiencing proxy contests for seats on their board of directors. Dissident shareholders usually fail to obtain a majority of board seats. Nevertheless, they capture some seats, via mechanisms such as cumulative voting, in over half of the sample contests. Regardless of proxy contest outcome, positive and statistically significant share price performance is associated with the contest. That finding is predicted by the standard economic analysis of proxy contests, in which the challenges benefit shareholders by improving corporate performance. The finding runs counter to the claim of Berle (1962) that the economists' view of proxy contests is ‘a wholly imaginary picture’. A portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent, however, and as suggested by Manne (1962) is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares.
In this testimony to the House Ways and Means Committee on February 1, 1989 (when LBOs and other highly leveraged transactions were under fierce attack by politicians and the media), the author identified “LBO associations” such as KKR and Forstmann Little as a valuable innovation in organizational form—a new model of management and governance that was competing directly with the headquarters of large public corporations, especially conglomerates. In the author's words, LBOs “substitute incentives provided by compensation and ownership plans for the direct monitoring and often centralized decision‐making in the typical corporate bureaucracy.”
In illustrating his point, the author noted that whereas the CEOs of U.S. companies during the '70s and '80s saw their personal wealth go up by only about $3 for every $1,000 increase in firm value, the average CEO in an LBO experienced a change of $64 per $1,000—and for the partners of the LBO firm, the closest equivalent to a conglomerate CEO, the change was about $200 per $1,000.
Based on the performance of the first wave of LBOs to return to public ownership, such dramatic concentrations of equity ownership appear to have produced large gains in operating efficiency. (And since the author's testimony, these findings have been confirmed by subsequent studies of later periods and in other countries.) The heavy debt loads in these transactions, besides making possible the concentration of equity ownership, also perform an important control function, intensifying the search for efficiencies and discouraging reinvestment in low‐return projects. For those LBOs that have trouble servicing their debt loads, the author argues that the costs of insolvency should turn out to be significantly lower than for traditional public companies because LBOs provide strong incentives to keep the process of reorganizing troubled companies out of the bankruptcy court (a prediction that, although proving wrong in the early‘90s, has turned out to be true of the most recent wave of private equity deals).
This paper presents evidence on changes in operating results for a sample of 76 large management buyouts of public companies completed between 1980 and 1986. In the three years after the buyout, these companies experience increases in operating income (before depreciation), decreases in capital expenditures, and increases in net cash flow. Consistent with the operating changes, the mean and median increases in market value (adjusted for market returns) are 96% and 77% from two months before the buyout announcement to the post-buyout sale. The evidence suggests the operating changes are due to improved incentives rather than layoffs or managerial exploitation of shareholders through inside information.
This paper examines whether differences in the structure of the board of directors and equity ownership contribute to the incidence of hostile takeovers. Evidence from a sample of completed and abandoned hostile takeover attempts that occurred during 1980–1988 indicates that, relative to a control sample, outside directors in hostile targets have lower ownership stakes and hold fewer additional outside directorships. Ownership by blockholders unaffiliated with management raises and that by affiliated blockholders decreases the likelihood of a hostile takeover attempt. These results suggest that the board of directors and hostile takeovers are substitute mechanisms and that unaffiliated blockholdings and hostile takeovers are complementary mechanisms for corporate control.
This paper investigates effects of going-private buyout proposals made from 1974 to 1985 on the value and default risk of convertible and nonconvertible debt and preferred stock securities. Positive average price reactions are documented for public convertible securities and nonconvertible preferred stock; many of these issues are redeemed as part of the buyout. Most nonconvertible debt securities remain outstanding without renegotiation after buyouts, and minimal average price reactions are documented for public nonconvertible debt. Following successful buyouts the proportion of debt in the capital structure more than triples on average, and most rated debt securities experience downgradings in Moody's ratings.
Management plays a dominant role in selecting outside directors, inviting skepticism about outsiders' ability to make independent judgments on firm performance. Our examination of wealth effects surrounding outside director appointments finds significantly positive share-price reactions. We find no clear evidence that outside directors of any particular occupation are more or less valuable than others. The results are consistent with the hypothesis that outside directors are chosen in the interest of shareholders.
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards. This result does not appear to be a function of ownership effects, size effects, or industry effects. Unexpected stock returns on days when resignations are announced are consistent with the view that directors increase firm value by removing bad management.
We identify factors that lead to changes among corporate directors. We hypothesize that the CEO succession process and firm performance will affect board composition. Our findings are consistent with both hypotheses. When their CEO nears retirement, firms tend to add inside directors (who may be possible candidates to be the next CEO) Just after a CEO change, inside directors with short tenures appear more likely to leave the board (they, perhaps, being the losing candidates). We also find that inside directors are more likely to leave the board and outside directors more likely to join after a firm performs poorly and when a firm leaves a product market.
The primary aim of the paper is to place current methodological discussions in macroeconometric modeling contrasting the ‘theory first’ versus the ‘data first’ perspectives in the context of a broader methodological framework with a view to constructively appraise them. In particular, the paper focuses on Colander’s argument in his paper “Economists, Incentives, Judgement, and the European CVAR Approach to Macroeconometrics” contrasting two different perspectives in Europe and the US that are currently dominating empirical macroeconometric modeling and delves deeper into their methodological/philosophical underpinnings. It is argued that the key to establishing a constructive dialogue between them is provided by a better understanding of the role of data in modern statistical inference, and how that relates to the centuries old issue of the realisticness of economic theories.
This paper estimates the systematic risk of the debt in public leveraged recapitalizations. We calculate this risk as a function of the difference in systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 37% to 57%, depending on the estimation method. If total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.65. Alternatively, if the entire market-adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.40.
This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of "ownership" and "control." Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions. Journal of Law and Economics, Vol. XXVI, June 1983. Separation of Ownership and Control * Eugene F. Fama and Michael C. Jensen Journal of...
Representing a Public Company in a Leveraged Buyout Transaction
- L Lederman
- B A Bryer
L. Lederman and B.A. Bryer, "Representing a Public Company in a Leveraged Buyout Transaction," in Leveraged Management Buyouts: Causes and Consequences, Y. Amihud (ed.), Homewood, IL, Dow Jones-Irwin, 1989.