The Association between Board Composition and Corporate Pension Policies

This study examines the role of board composition in the determination of pension policies. The results suggest that the proportion of outside directors serving on the board is positively related with pension plan funding levels. In addition, the proportion of outside directors mitigates the relation between financial distress risk and plan underfunding. Last, as firms approach distress, boards with a greater proportion of outside directors tend to allocate a lower fraction of plan assets to riskier securities. Together, our findings suggest that outside directors are mindful of their obligations toward pension plan beneficiaries.     

Board gender diversity and firm risk in UK private firms

This research aims to investigate the effect of board gender diversity on private firm risk. Using a sample of 27,352 UK private firms from 2005 to 2017, we report a negative association between board gender diversity and firm risk. In particular, we find that risk reduction is associated with women owner directors who may have a stronger incentive for better risk management. Firm risk is lower (higher) for boards with local (foreign) women directors suggesting that local market knowledge is more valuable for private firms. Lower director busyness in gender diverse boards is the channel that enables women directors to reduce firm risk by directing more attention to fiduciary responsibilities. Additional analysis reveals that more risky, small to medium-sized firms benefit the most from gender-diverse boards. Our findings are robust to alternate risk measurements and endogeneity corrections.     

CEO DIRECTORS,EXECUTIVE INCENTIVES,AND CORPORATE STRATEGIC INITIATIVES

I study how directors who are chief executive officers (CEOs) of other firms affect board effectiveness. I find that CEOs are paid more and their compensation is less sensitive to firm performance when other CEOs serve as directors. This is not an employment risk premium because CEO directors are not associated with higher turnover‐performance sensitivity. Also, CEO directors have no effect on corporate innovation but are associated with higher acquisition returns, especially for complex deals. My results suggest that the advisory benefits of CEO directors must be balanced against the distortions in executive incentives associated with their board service.     

Birds of a feather: Value implications of political alignment between top management and directors

For 2,695 US corporations from 1996 to 2009, we find that alignment in political orientation between the chief executive officer (CEO) and independent directors is associated with lower firm valuations, lower operating profitability, and increased internal agency conflicts such as a reduced likelihood of dismissing poorly performing CEOs, a lower CEO pay-performance sensitivity, and a greater likelihood of accounting fraud. Importantly, we show that our results are driven neither by the effects associated with various measures of similarity and diversity within the board nor the effects of local director labor market and political conditions on board structure. We provide evidence that our measure of individual political orientation reflects the person?s political beliefs rather than opportunistic attempts to seek political favor. Overall, our results suggest that diversity in political beliefs among corporate board members is valuable.     

Board gender composition and waste management: Cross-country evidence

Extant literature on board gender diversity focuses on the main pillars of sustainability while ignoring the important subdimension – waste management. Using a sample of 8365 firm-year observations for the period 2002–2017 from 37 countries, we provide novel empirical evidence that board gender diversity significantly reduces (increases) waste generation (waste recycling) in firms. We also note that the impact is significant with two or more female directors and is primarily driven by female directors’ independence. Moreover, the relationship is moderated by the masculinity dimension of national culture and sustainable compensation policies. Our analysis also shows that waste management activities of gender-diverse boards accompany the better financial performance. Our findings are robust to several identification strategies and estimation techniques. Our study provides new insights into the governance–sustainability nexus and presents important policy implications for regulators across countries.     

Default Risk Estimation,Bank Credit Risk,and Corporate Governance

This study explores the relationship between credit risks of banks and the corporate governance structures of these banks from the perspective of creditors. The cumulative default probabilities are estimated for a sample of US commercial and savings banks to measure their risk taking behavior. The results show that one year and five year cumulative default probabilities are time‐varying, with a significant jump observed in the year prior to the financial crisis of 2008–09. Generally speaking, corporate governance structures have a greater impact on US commercial banks than on savings institutions. We provide evidence that, after controlling for firm specific characteristics, commercial banks with larger boards and older CFOs are associated with significantly lower credit risk levels. Lower ownership by institutional investors and more independent boards also have lower credit risk levels, although these effects are somewhat less significant. For all the banks in our sample, large board size, older CFO, and less busy directors are associated with lower credit risk levels. When we restrict the sample to consider the joint effects of the governance variables, the results on board size and busy directors are maintained.     

Board composition and operational risk events of financial institutions

We investigate the relation between board composition and operational risk events of financial institutions in the period from 1996 to 2010. Drawing from corporate governance literature, we consider the impact of board characteristics on the likelihood of operational risk events. Overall, our findings suggest that board size is negatively and non-linearly associated with the possibility of operational risk events. For the event types of “Clients, Products, and Business Practices,” and “Internal Fraud and External Fraud,” firms with a higher proportion of independent directors are less likely to suffer from fraud or failure to comply with professional obligations to clients. Our results on age and tenure heterogeneity also indicate that having a more diverse board can have an adverse impact on the board monitoring function. These results can shed new light on board demographics and operational risk management in financial institutions.     

Risk management,corporate governance,and bank performance in the financial crisis

The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether risk management-related corporate governance mechanisms, such as for example the presence of a chief risk officer (CRO) in a bank’s executive board and whether the CRO reports to the CEO or directly to the board of directors, are associated with a better bank performance during the financial crisis of 2007/2008. We measure bank performance by buy-and-hold returns and ROE and we control for standard corporate governance variables such as CEO ownership, board size, and board independence. Most importantly, our results indicate that banks, in which the CRO directly reports to the board of directors and not to the CEO (or other corporate entities), exhibit significantly higher (i.e., less negative) stock returns and ROE during the crisis. In contrast, standard corporate governance variables are mostly insignificantly or even negatively related to the banks’ performance during the crisis.     

The Effect of Board Diversity on Earnings Quality: An Empirical Study of Listed Firms in Vietnam

Previous studies have established that firms’ effectiveness can differ based on the differences among directors within a board, and between boards. However, studies have yet to establish the effectiveness of the diverse attributes of the board on firms’ quality of earnings in an emerging market setting such as Vietnam. This study investigates the effect of board diversity on earnings quality in a sample of Vietnamese listed firms. The two dimensions of board diversity measures in this study cover a wide range of structural and demographic attributes of board of directors, using a diversity‐of‐boards index (dissimilarities among firm boards, i.e., board structure) and a diversity‐in‐boards index (dissimilarities among directors within a board, i.e., demographic attributes of board members). Earnings quality is an aggregate measure compiled from four accounting‐based measures of earnings quality: accruals quality, earnings persistence, earnings predictability and earnings smoothness. We find a significant, positive linear relationship between diversity of boards and earnings quality, while the relationship between diversity in boards and earnings quality is non‐linear, with a U‐shaped curve.     

Competition For Board Seats Following Stock‐For‐Stock Mergers

We examine the board structure of firms following stock‐for‐stock mergers. We find that former target inside (outside) directors are more likely to join the combined firm board when target insiders (outsiders) have a relatively strong position on the pre‐merger target board. The relative size of the target firm, target firm profitability, and target blockholder ownership also influence whether target directors join the combined board. We conclude that competition for board seats on the combined board is won by target directors with greater bargaining positions.     

The Effects of Executive,Firm, and Board Characteristics on Executive Exit

We estimate a hazard model of the probability of top corporate executives exiting their firms over the period 1996–2010. Our main findings are that: (1) female executives have greater likelihoods of exit than males, (2) the likelihood of exit increases with the independence of the board and decreases with the fraction of the board that is female and the average age of board members, and (3) a higher percentage of independent directors on the board lowers the probability of exit more for females than for males. Further, controlling for exit risk reduces the well‐documented compensation differential between men and women.     

Financial fraud,director reputation,and shareholder wealth

We investigate the reputational impact of financial fraud for outside directors based on a sample of firms facing shareholder class action lawsuits. Following a financial fraud lawsuit, outside directors do not face abnormal turnover on the board of the sued firm but experience a significant decline in other board seats held. This decline in other directorships is greater for more severe allegations of fraud and when the outside director bears greater responsibility for monitoring fraud. Interlocked firms that share directors with the sued firm also exhibit valuation declines at the lawsuit filing. Fraud-affiliated directors are more likely to lose directorships at firms with stronger corporate governance and their departure is associated with valuation increases for these firms.     

Compensation committee governance quality,chief executive officer stock option grants,and future firm performance

This paper examines whether the relationship between future firm performance and chief executive officer (CEO) stock option grants is affected by the quality of the compensation committee. Compensation committee quality is measured using six committee characteristics – the proportion of directors appointed during the tenure of the incumbent CEO, the proportion of directors with at least ten years’ board service, the proportion of directors who are CEOs at other companies, the aggregate shareholding of directors on the compensation committee, the proportion of directors with three or more additional board seats, and compensation committee size. We find that future firm performance is more positively associated with stock option grants as compensation committee quality increases.     

The differential effects of classified boards on firm value

Classified boards actually benefit firms that have low monitoring costs and greater needs for advisory services. Previous literature has emphasized the entrenchment effect of classified boards. However, we find that this adverse impact of classified boards can be offset or even superseded by the potential benefits of board classification for firms who hope to benefit from the advisory services of their independent directors. We show that firms with greater advising needs appoint more outside directors with diverse attributes and expertise, qualifications that enhance the ability to provide useful advice to managers. Furthermore, in such firms, board classification is associated with higher performance sensitivity of forced CEO turnover and better acquisition performance. Conversely, in firms with high monitoring costs, board classification hurts managerial equity-based incentives and risk-taking incentives. These findings suggest how and through which channels classified boards engender the differential effects on firm value.     

Women in the boardroom and their impact on governance and performance

We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.     

Gender-diverse boards and audit fees: What difference does gender quota legislation make?

We investigate the effect of board (audit committee) gender diversity on audit fees in the French context. We also examine whether the relationship between the proportion of female directors and audit fees is moderated by the enactment of the gender quota law in 2011. We use the system GMM estimation approach on a matched sample of French firms listed in the SBF 120 index between 2002 and 2017. Consistent with the supply-side perspective, we contend that female independent directors and female audit committee members, by improving board monitoring effectiveness, affect the auditor's assessment of audit risk, resulting in lower audit fees. Our findings also document that, by breaking the glass ceiling, the effectiveness of the gender quota law lies not in increasing the proportion of female insider directors, but in boosting the appointment of female independent directors and female audit committee members. Using the difference-in-difference approach, our results reveal that female independent directors and female audit committee members are more willing to assert their monitoring skills after the quota law, leading to lower audit fees. Moving beyond tokenism, we show that, after the quota law, the negative impact on non-audit fees is strengthened only for female independent directors.     

Effects of female directors on gender diversity at lower organization levels and CSR performance: Evidence in Japan

This paper examines the effects of board gender diversity on female representation at lower organization levels and corporate social responsibility (CSR) performance. Using a panel data set of more than 1000 Japanese listed firms from 2005 to 2014, we focus on firms that introduced female directors to their male-dominant boards for the first time and find that the first-introduced female directors are positively associated with a greater number of female officers and managers. The introduction of the first female director is also associated with better CSR performance. Our results are statistically significant and suggest that board gender diversity has an effect on promoting gender diversity at lower levels and CSR performance in listed firms.     

Board composition, regulatory regime and voluntary disclosure

This study, which examines the association between board monitoring and the level of voluntary disclosure, finds new evidence that firms with a higher proportion of independent directors on the board are associated with higher levels of voluntary disclosure. Although board size and CEO duality are not associated with voluntary disclosure, boards with a majority of independent directors have significantly higher levels of voluntary disclosure than firms with balanced boards. Notably, we find that the presence of an external governance mechanism, the regulatory environment, enhances the strength of the association between the proportion of independent directors and the level of voluntary disclosure. This association is some two to three times greater under a “disclosure-based” regulatory regime than under a “merit-based” regulatory regime.     

Does board structure in banks really affect their performance?

We study whether board structure (board size, independence and gender diversity) in banks relates to performance. Using a broad panel of large US bank holding companies over the period 1997–2011, we find that both board size and independent directors decrease bank performance. Although gender diversity improves bank performance in the pre-Sarbanes-Oxley Act (SOX) period (1997–2002), the positive effect of gender diminishes in both the post-SOX (2003–2006) and the crisis periods (2007–2011). Finally, we show that board structure is particularly relevant for banks with low market power, if they are immune to the threat of external takeover and/or they are small. Our two-step system generalised method of moments estimation accounts for endogeneity concerns (simultaneity, reverse causality and unobserved heterogeneity). The findings are robust to a wide range of other sensitivity checks including alternative proxies for bank performance.     

EVIDENCE ON THE MARKET FOR PROFESSIONAL DIRECTORS

Using the temporary increase in the supply of directors associated with successful tender offers, we examine characteristics of directors who are valuable in the market for board seats. We find that after a takeover, professional directors are three times more likely to receive new appointments than other types of directors released from their respective boards. We find that the proportion of professional directors in above‐average performing targets is significantly greater than that in underperforming targets. Our results indicate that professional directors generally have valuable general human capital that more than offsets the costs of multiple directorships.