Corporate Governance and Agency Conflicts

I investigate whether corporate governance is associated with the level of agency conflicts in firms. I employ exploratory principal components analysis on 22 individual governance variables to obtain seven factors that represent the different dimensions of governance for a firm. I measure the level of agency conflicts in firms based on seven proxies for agency conflicts used in the literature. I find that firms with greater agency conflicts have better governance mechanisms in place, particularly those related to the board, audit committee, and auditor. I also find that the composition and functioning of the board, the independence of the auditor, and the equity‐based compensation of directors are significantly associated with firm performance, but primarily for firms with high agency conflicts. Overall, the results support the theory that the existence and role of various governance mechanisms in a firm are a function of the level of agency conflicts in the firm.     

公司治理影响公司财务风险吗?

绩效和公司价值往往为学术界和实务界所重视,而风险这一反映企业行为的经济后果以及企业质量的重要指标往往被忽视。这样的一个结果是,一些看似业绩很好的公司一夜之间轰然倒塌。从已有的文献看,公司治理具有改善公司业绩及公司价值的作用,同样,我们认为,公司治理应该具有风险效应,即它可能影响到公司的风险。本文以我国证券市场2002-2005年的上市公司为研究对象,研究了公司治理对企业财务风险的影响。实证结果表明,我国上市公司的公司治理结构对企业财务风险具有一定的影响。本文的研究为人们深入认识公司治理的作用以及通过合理构建公司治理结构来有效降低企业财务风险具有一定的启示意义。     

On the relation between corporate governance compliance and operating performance

Better corporate performance has been cited as one of the main benefits of adopting good corporate governance structures within organisations. However, in contrast to theory, a prior European study (Bauer et al., 2004) reports evidence of a negative relationship between corporate governance and corporate performance. This study re‐examines this relationship, and reports evidence of a positive relationship between the extent of compliance with international best practices concerning board structure and functioning and operating performance when operating performance is measured by the return on assets (ROA). This result is robust to controlling for the firms’ compliance with best practices in other governance areas, and holds for some other governance dimensions, namely disclosure of corporate governance and the range of takeover defences. Further tests indicate that greater compliance with international best practices concerning board structure and functioning is significantly associated with reporting less income from asset disposals and that studying a performance measure that includes this item obscures the inherently positive relationship between operating performance and the extent of compliance with international best practices regarding board structure and functioning. The results provide some support for an oftencited motivation for the adoption of good governance practices, and provide explicit evidence that the measure of operating performance is crucial in examining firm‐level operating performance.     

Enterprise risk management and firm performance: Role of the risk committee

In recent years, there have been increasing efforts in the corporate world to invest in risk management and governance processes. In this paper, we examine the impact of Enterprise Risk Management (ERM) on firm performance by examining whether firm performance is strengthened or weakened by the establishment of a board-level risk committee (BLRC), an important governance mechanism that oversees ERM processes. Based on 260 observations from FTSE350 listed firms in the UK during 2012–2015, we find the effectiveness of ERM significantly and positively affects firm performance. We also find strong BLRC governance complements this relationship and increases the firm performance effects of ERM. Our findings suggest the mere formation of a BLRC is not a panacea for ERM oversight; however, existence of a structurally strong BLRC is crucial for effective ERM governance.     

Corporate governance,capital structure and firm performance: Evidence from Thailand

We examine the relationship between corporate governance and firm performance for a panel sample of 493 firms of non-financial firms in Thailand during the period 2001–2014. We find that for the full sample, corporate governance is not associated with financial leverage and firm performance. Leverage has a positive effect on firm performance. When we split firms into small and large firm subsamples, we observe some influence of corporate governance. The negative effect of audit committee size on firm performance is evident for large firms while the effect of audit reputation on firm performance is evident for small firms only. Furthermore, financial leverage mediates the effect of audit committee size on firm performance for the large firms.     

Corporate governance and the value of cash holdings

We investigate how corporate governance impacts firm value by comparing the value and use of cash holdings in poorly and well-governed firms. We show that governance has a substantial impact on value through its impact on cash: $1.00 of cash in a poorly governed firm is valued at only $0.42 to $0.88. Good governance approximately doubles this value. Furthermore, we show that firms with poor corporate governance dissipate cash quickly in ways that significantly reduce operating performance. This negative impact of large cash holdings on future operating performance is cancelled out if the firm is well governed.     

管理层权力对企业绩效的影响研究——基于企业内部治理机制视角

以我国主板上市企业数据为基础,实证检验了上市企业管理层权力对企业绩效的影响,内部治理机制对管理层权力——企业绩效敏感性的影响。实证结果表明,内部治理机制影响管理层权力与企业绩效之间关系的敏感性,当不考虑内部治理机制时,企业绩效与管理层权力综合变量在1%水平上显著正相关,具有较高教育背景和持有企业股权的管理层,能为企业带来更好的业绩。当考虑内部治理机制时,企业绩效与管理层权力综合变量仅在10%水平上正相关。管理层权力综合变量对股权制衡度较低和独立董事比重较高的企业的绩效具有显著正向影响。     

Institutional determinants of bid–ask spreads in Caribbean offshore stock exchanges

My study contrasts the influence of firm level adoption of shareholder value governance against that of formal institutional quality on listed firm’s bid ask spread in a unique sample of eight Caribbean offshore stock exchanges. Using panel data from 146 listed firms from 2004 to 2017 my findings reveal the importance of Worldwide Governance Indicator dimensions of corruption control and regulatory quality in explaining firm’s bid ask spreads. Furthermore, formal institutional quality is consistently statistically superior in explaining firm’s bid ask spreads than firm level governance adoption. My findings emphasise the importance in considering political economy in offshore financial markets.     

Corporate governance and operating performance of Chinese listed firms

In this paper, we investigate the impact of corporate governance on firm performance and valuation in China. Our study introduces a composite measure of corporate governance to measure the association between corporate governance and Chinese firms’ performance and valuation. Because agency theory suggests that companies with better corporate governance standards perform better, we propose that better governed Chinese firms would have greater performance and higher valuation. We find that our composite measure of corporate governance is positively and significantly associated with firm performance and valuation. These findings have implications for policy makers, researchers, managers, and investors in general and those in emerging markets in particular.     

Corporate Governance and Firm Performance in Iran

This study uses data from companies listed in the Tehran Stock Exchange (TSE) for the years 2005–2006 to investigate the role of corporate governance indices on firm performance. We use board size, board independence, board leadership and institutional investors on the board as corporate governance indices and EPS, ROA and ROE as firm performance surrogates. Our regression results show that board size is negatively associated with firm performance. Moreover, the presence of outside directors strengthens the firms' performance. We find, however, no relationship between leadership structure and firm performance. Likewise, the presence of institutional investors on the board of directors is not positively associated with firm performance.     

Do institutional shareholder services (ISS) corporate governance ratings reflect a company's operating performance?

Little is known about the relation between the actual governance rating received by a firm and the firm's performance. In this study, we examine the relation between the actual corporate governance rating received by a firm and the firm's performance during the years 2002–2004. We use the institutional shareholder services (ISS) corporate governance quotient (CGQ) rating of a firm's corporate governance structure and analyze this rating in relation to the firm's operating performance. We compare the institutional shareholder services’ CGQ rating to two measures of the firm's operating performance, return on assets (ROA) and return on equity (ROE). Based upon our results, we do not find statistical evidence suggesting that the firms’ operating performance is related to the firms’ ISS corporate governance rating.     

Corporate governance and manager turnover: An unusual social experiment

This paper examines empirically the quality of the governance mechanisms of Chinese state-owned enterprises from 1994–1999, a period marked by substantial changes in policies affecting the governance structure of these firms. It shows that the restructuring of these enterprises according to corporate law improved the effectiveness of their governance system. Specifically, restructuring strengthened the links between manager turnover and firm performance. The results indicate that firm performance was significantly and negatively related to manager demotion for incorporated state-owned enterprises, while this relationship was insignificant for unincorporated enterprises. They also indicate that manager turnover was a viable incentive mechanism for improving future enterprise performance.     

Corporate Governance and Value: Evidence from “Close Calls” On Shareholder Governance Proposals

The authors summarize the findings of their recent study of the effects of specific corporate governance provisions on firm value. Using a sample of governance provisions that were subjected to shareholder votes during the period 1997–2011, this study analyzes cases in which shareholder‐sponsored corporate governance proposals were either rejected or passed by a small margin (no more than 5% of the vote). By so doing, this study helps correct two limitations of the existing governance literature: (1) that the effects of expected governance changes are already incorporated in share prices (the “expectations” problem); and (2) that governance policies are often a consequence rather than a cause of other variables such as corporate performance and are thus correlated with many other firm characteristics (the “endogeneity” problem). The authors' findings show that expected improvements in corporate governance through the adoption of particular corporate governance provisions—particularly the removal of anti‐takeover provisions—is associated with both positive abnormal stock returns and improvements in long‐term firm operating performance. The authors estimate that the adoption of such governance proposals increases shareholder value by 2.6%, on average. Moreover, these returns are consistent with, and thus accurate predictors of, future changes in corporate investment (reductions of capital spending, in most cases) and improvements in operating performance.     

Endogeneity and the dynamics of internal corporate governance

We use a well-developed dynamic panel generalized method of moments (GMM) estimator to alleviate endogeneity concerns in two aspects of corporate governance research: the effect of board structure on firm performance and the determinants of board structure. The estimator incorporates the dynamic nature of internal governance choices to provide valid and powerful instruments that address unobserved heterogeneity and simultaneity. We re-examine the relation between board structure and performance using the GMM estimator in a panel of 6,000 firms over a period from 1991 to 2003, and find no causal relation between board structure and current firm performance. We illustrate why other commonly used estimators that ignore the dynamic relationship between current governance and past firm performance may be biased. We discuss where it may be appropriate to consider the dynamic panel GMM estimator in corporate governance research, as well as caveats to its use.     

Modeling board governance,environmental expertise,and social engagement effects on firm environmental performance: Panel data evidence

Prior research establishes that board governance quality measures positively impact firm environmental performance. In this study, we propose an empirical model using structural equation modeling (SEM) to explore additional enhancements to board governance, namely board environmental expertise (BEE) and board social engagement (BSE) and show that they incrementally improve firm environmental performance (EN). Our proposed latent construct measure, BEE, goes beyond traditionally dichotomous measures used in the literature. BEE has a total effect on firm environmental performance that is over two thirds the size of effects arising from traditional governance quality measures (GOV). The second enhancement of our model is the focus on BSE, a novel construct to the CSR literature. In addition to possessing environmental knowledge enabling expertise, we demonstrate that a board with a deeper commitment to society will further improve firm environmental performance. Using SEM, we find that the indirect effects of GOV, BEE, and BSE on EN represent a substantial portion of the total effects on EN. Hence, ignoring these indirect effects would result in substantial understatement of the effects of improvements to governance on environmental performance.     

CEO tenure and the performance-turnover relation

In a broad cross-section of US firms, we document that the likelihood of a CEO’s performance-related dismissal declines in his tenure. This finding is consistent with both firm performance revealing information about a CEO’s uncertain executive ability and CEO tenure reflecting weak firm governance choices that reduce the likelihood of performance-related dismissal. In a sample of CEOs who begin their appointment during our sample period, we find evidence more broadly in favor of the former explanation. Specifically, we find that (1) CEO survival is associated with superior firm performance, (2) this relation is unaffected by firm governance choices, (3) the intensity with which a firm monitors its CEO declines over his tenure, and (4) firms’ monitoring intensity increases following CEO turnover. Collectively, our results suggest that periodic performance reports increasingly resolve uncertainty regarding executive ability, thereby lowering firm owners’ demand for monitoring their CEO over his tenure.     

Corporate Social Responsibility,Corporate Performance,and Pay-Performance Sensitivity—Evidence from Shanghai Stock Exchange Social Responsibility Index

Based on annual data of listed companies on Shanghai Stock Exchange (SSE) through 2009–2013, this article examines three hypotheses: first, whether a firm’s taking corporate social responsibility (CSR) affects corporate performance; second, whether corporate governance and a firm’s age positively moderate the relationship between CSR and performance; and third, whether CSR positively moderates the magnitude/direction of linkage between a firm’s performance and top management/director compensation (pay-performance sensitivity, PPS). Three proxies for CSR engagement are constructed by a firm’s inclusion in the SSE Social Responsibility Index. Empirical evidence generally shows that firms engaging in CSR tend to obtain superior performance in terms of higher profitability. However, firm’s age and sound corporate governance have little additional benefit on the effect of a firm engaging in CSR on performance. Finally, greater CSR engagement is associated with larger PPS. Principal outcome does not shift under two-stage estimation and propensity score matching (PSM) to correct for sample self-selection of CSR engagement.     

Corporate governance and impression management in annual results press releases

We study the association between corporate governance and impression management in annual results press releases (ARPRs). Press releases constitute a timely vehicle to communicate firm performance to third parties but they can be manipulated to distort readers’ perceptions of corporate achievements. We predict that governance mechanisms actively monitor managerial disclosures, improving firm transparency and thus reducing impression management in ARPRs. The results confirm that strong governance limits impression management, consistent with governance monitoring effectively reducing self-serving disclosures by management. Our evidence suggests that management disclosure practices respond, at least partly, to informative motivations. We also show that strong governance firms are more likely to release an ARPR.     

Corporate governance and family firm performance during the Global Financial Crisis

We investigate the impact of corporate governance on accounting and market performance relationships of family firms during the Global Financial Crisis (GFC). We expect the monitoring aspects of corporate governance to complement the long-term orientation of family firms, improving the value relevance of accounting and market performance during times of exogenous financial shocks such as the GFC. We find that the family-firm value is more sensitive to book value than earnings changes. We also find better corporate governance, irrespective of whether it is a family firm or non-family firm, is associated with better accounting and market performance during the GFC.     

Corporate fraud culture: Re‐examining the corporate governance and performance relation

We analyse the corporate governance and performance relation, when conditioning on corporate fraud, for fraud firms during 2000 – 2007. Fraud firms are identified as either self‐ reported fraud events, or subject to regulatory investigation. We use the inverse Mills ratio procedure to account for firms' (unobservable) fraud culture in the dynamic system GMM model of the performance‐ governance relation. We find that corporate governance is an endogenously determined characteristic that has no causal impact on firm performance when conditioning on fraud. Fraud is a significant regulatory event but its overall economic impact at the firm level is highly variable.