Do religiosity and political beliefs affect female representation and firm performance?

We investigate the effect of the community values surrounding a firm's headquarters on the percentage of women on a firm's board of directors. We use religiosity and political affiliation measures to capture the values associated with the community norms. We find that firms headquartered in counties with lower religiosity and a lower percentage of Republican voters are more likely to have a greater number of female board members. Furthermore, firms with more female directors located in more Republican areas or more religious cities are more likely to have lower valuations, as measured by Tobin's Q. These results have implications for corporate culture and the supply of female directors.     

Shareholder litigation rights and stock price crash risk

We study the impact of shareholder-initiated litigation risk on a firm's stock price crash risk. Our empirical analysis takes advantage of the staggered adoption of universal demand laws, which led to an exogenous decline in derivative litigation risk. We find that a decline in the threat of derivative litigation reduces crash risk and that information hoarding associated with earnings management is a channel through which litigation risk affects crash risk. The relationship is also moderated by how exposed firms are to the other primary form of shareholder litigation, namely securities class-action lawsuits.     

Women in power with power: The influence of meaningful board representation on default risk

This paper examines the relationship between the presence of female board members and firms' corporate default risk. We find an inverted “U-shaped” relationship for a sample of 917 firms in 19 emerging markets for the period 2005–2019. We also show that, consistent with critical mass theory, boards need to have three or more female directors to significantly reduce default risk. Furthermore, having female directors with an independent role on the board in countries with less familial dominance, or having female directors with a leadership position, significantly reduces default risk. Finally, we find a positive effect of the interaction between a country's gender inequality and board gender diversity on default risk.     

Co-opted boards and capital structure dynamics

This study examines the effects of co-opted directors and further tests the monitoring effectiveness of non-co-opted independent directors and co-opted independent directors on capital structure decisions. Employing a large sample of 2548 US firms over the 1996–2015 period, we find strong evidence that co-opted boards exert a positive and significant influence on firms' financial leverage. We also find that, whereas co-opted independent directors are positively associated with financial leverage, non-co-opted independent directors have a negative influence on a firm's leverage ratio, suggesting that co-option weakens the effective monitoring, thereby increasing the firm's leverage ratio. Further analysis indicates that co-opted boards adjust towards target leverage levels at a faster speed, with a half-life within a year for book and market leverage. Lastly, our results show that the agency costs of managerial discretion and stockholder-bondholder conflicts arising from board co-option are important drivers of financial leverage relative to tax incentives. Our results are robust to alternative measures of board co-option, financial leverage, and endogeneity concerns.     

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.     

Director overconfidence

We examine overconfident chief executive officer (CEO) directors and find they attend more board meetings, are more likely to serve on the nominating or the compensation committee, have more independent directorships, and foster higher attendance rates on boards. Boards with overconfident directors are more likely to appoint a better prepared and more reputable CEO following a turnover. These newly appointed CEOs are also more likely to be overconfident. This evidence indicates overconfident CEO directors exhibit significant influence on the board and over the firm's CEO selection.     

Bankers on the board and the debt ratio of firms

We investigate the impact that bankers on the board have upon a firm's debt ratio, debt to total capital, 1 year subsequent to their appointment. We find that the presence of lending bankers on a firm's board negatively affects the debt ratio, while the impact of non-lending bankers varies with the firm's probability of financial distress. The results suggest that non-lending bankers provide expertise and certification for distressed firms while exercising a monitoring role for non-distressed firms. In contrast, the results suggest that lenders on the board exercise a monitoring role independent of the firm's financial distress. When combined with established findings in the literature, we conclude that there may be two ways to avoid conflict between a board-appointed banker's fiduciary responsibility and the interests of her bank. When the potential for conflict is high, lenders may forgo board positions, while non-lending bankers may merely alter their role on the board.     

How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi-natural experiment

We investigate how independent directors view corporate social responsibility (CSR). Exploiting the passage of the Sarbanes-Oxley (SOX) Act and the associated exchange listing requirements as an exogenous regulatory shock, we document that independent directors view CSR activities unfavorably. In particular, firms forced to raise board independence reduce CSR engagement significantly relative to those not required to increase board independence. Our results are consistent with the risk-mitigation view and the agency cost hypothesis where managers over-invest in CSR to mitigate their own exposure to nonsystematic risk. The over-investments in CSR are curbed in the presence of a stronger, more independent, board of directors. Several robustness checks confirm the results, including fixed-effects and random-effects regressions, dynamic panel data analysis, instrumental-variable analysis, propensity score matching, Lewbel's heteroscedastic identification, and Oster's method for coefficient stability. We also confirm the risk-mitigation hypothesis by showing that CSR activities reduce firm risk significantly. Our research design is much less vulnerable to endogeneity and is therefore likely to show a causal effect of board independence on CSR.     

Institutional monitoring and litigation risk: Evidence from employee disputes

In this article, we investigate how institutional investors help mitigate business‐related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long‐term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement in employee work conditions has been shown to increase a firm's value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm's litigation risk.     

Female directors: Why are some less informed than others?

We find the limited supply of female directors, rather than gender differences or boardroom biases, can create an informational disadvantage for some female independent directors, as measured by their open market trading profits. The information disparity is largely isolated to firms with abnormally low representation by female directors. Female independent directors who are located further away from the company's headquarters, have less industry experience or have shorter tenure exhibit the most limited information access. Accounting for these obstacles reduces the gender disparity in information. We further find that this information disparity among female independent directors contributes to the variation in their influence on board monitoring. More informed female independent directors are associated with fewer restatements, lower abnormal CEO compensation and higher Tobin's Q. Our results have several policy implications.     

Corporate boards' political ideology diversity and firm performance

We investigate whether diversity in points of view within corporate boards, as captured by the diversity in political ideology of board members, can affect a firm's performance. We employ personal political contributions' data to measure political ideology distance among groups of inside, outside directors and the CEO. Our empirical evidence strongly supports the notion that outside directors' monitoring effectiveness is more likely to be enhanced when their viewpoints are distinct from those of management. We find that ideologically diverse boards are associated with better firm performance, lower agency costs and less insiders' discretionary power over the firm's Political Action Committee (PAC) spending. Taken together, our results lead us to conclude that multiplicity of standpoints in corporate boardrooms is imperative for board effectiveness.     

Litigation risk: Measurement and impact on M&A transaction terms

The purpose of the paper is to propose an original proprietary proxy of a firm's litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm's policies and in its management's operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 465 US M&A transactions between 2000 and 2014, we provide evidence that the level of litigation risk, at the acquirer's level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer's litigation risk and the means of payment. An extension of the sample to international transactions is used as a robustness check; it confirms the previous results.     

Do women directors improve firm performance in China?

This paper examines the effect of board gender diversity on firm performance in China's listed firms from 1999 to 2011. We document a positive and significant relation between board gender diversity and firm performance. Female executive directors have a stronger positive effect on firm performance than female independent directors, indicating that the executive effect outweighs the monitoring effect. Moreover, boards with three or more female directors have a stronger impact on firm performance than boards with two or fewer female directors, consistent with the critical mass theory. Finally, we find that the impact of female directors on firm performance is significant in legal person-controlled firms but insignificant in state-controlled firms. This paper sheds new light on China's boardroom dynamics. As governments increasingly contemplate board gender diversity policies, our study offers useful empirical guidance to Chinese regulators on the issue.     

Relationship-based debt financing of Chinese private sector firms: The role of social connections to banks versus political connections

We study whether a firm's social connections to banks can augment its political connections to help it obtain loans. In China, Regulation No. 18 (announced in 2013) prohibits all high-level government officials from being independent directors of firms. As a result, many firms lost their political connections. We find that after firms lose their politically connected independent directors, firms having no social connections to banks experience, on average, a 12% decrease in the bank loan ratio relative to the median ratio; but those whose board chairs or CEOs are socially connected to local bank branch heads experience a 22% increase in the loan ratio relative to the median. However, this positive effect is short lived and thus not a new equilibrium. Overall, our findings support the hypothesis that a firm's social connections to banks can augment its political connections to help it get bank financing.     

Voluntary adoption of board risk committees and financial constraints risk

To improve risk management processes, policymakers around the world have encouraged firms to invest in improving risk oversight and governance practices, such as adoption of a board risk committee (BRC). This paper examines whether adoption of a BRC improves a firm's access to capital by reducing financial constraints risk. Using a sample of 28,265 observations from listed firms in the U.S. from 2005 to 2017, we find voluntary adoption of a BRC significantly reduces financial constraints risk. This finding is robust to alternative proxies of financial constraints risk, accounting for sample selection bias and controlling for unobserved firm-level heterogeneity. We also find that BRC characteristics including size, financial experts and female directors are negatively related to financial constraints risk. In addition, we document significant indirect effects of BRCs on financial constraints risk through reducing information asymmetry and agency costs. In summary, the findings of this paper indicate that voluntary adoption of a BRC is important for listed firms without an effective risk governance structure at the board level.     

Managerial ownership,board structure,and the division of gains in divestitures

This study shows that shareholders of a firm that divests assets receive gains that are significantly related to stock ownership by the firm's managers and to the proportion of outside directors on the firm's board when the divestiture produces positive total dollar gains. Our results agree with the notions that higher levels of ownership give managers the incentive to sell assets that create negative synergies, the incentive to negotiate the best price for shareholders, and that outside directors fulfill their responsibilities as effective monitors and advisors to management.     

Corporate Governance,Managers' Independence,Exporting, and Performance of Firms in Transition Economies

Using data on 157 large companies in Poland and Hungary, this paper employs Bayesian structural equation modeling to examine the relations among corporate governance, managers' independence from owners in terms of strategic decision making, exporting, and performance. Managers' independence is positively associated with firms' financial performance and exporting. In turn, the extent of managers' independence is negatively associated with ownership concentration, but positively associated with the percentage of foreign directors on the firm's board. We interpret these results as indicating that concentrated owners tend to constrain managerial autonomy at the cost of the firm's internationalization and performance, but board participation of foreign stakeholders enhances the firm's export orientation and performance by encouraging executives' decision-making autonomy.     

Does the independence of independent directors matter?

This paper analyzes the characteristics of firms that declare board directors as independents, although the directors are not strictly independent, and examines the consequences in terms of performance and corporate governance outcomes. Based on publicly available information, eight criteria of “independence” used to examine a panel of Spanish listed firms classify 14.2% of the directors as strictly independent, whereas the firms classify 32.5% of the board as independent directors. Firms with dispersed ownership structures misclassify directors more frequently than do firms with large controlling owners. In terms of consequences, we find weak evidence of a negative relation between misclassification and a firm's future operating performance. However, no relation is found between independents' misclassification and several relevant outcomes of the primary delegated committees with monitoring roles: the audit committee and the nomination and remuneration committee. There is no significance with regard to the non-strictly independent measures explaining executive directors' compensation, CEO turnover, audit qualifications or earning management behavior.     

Independent directors and the propensity to pay dividends

Using data from 944 public companies in 2006, I examine how a firm's propensity to pay dividends is related to (i) board independence and (ii) independent directors' tenure, number of board seats (busy) and equity incentive compensation. After controlling for the effects of traditional economic, CEO entrenchment and ownership determinants of the propensity to pay dividends, I find evidence of a positive association between the propensity to pay and (i) board independence and (ii) director tenure, and a negative association between the propensity to pay and (i) busy directors and (ii) greater equity incentive compensation in the director pay structure. I find consistent results when the decision is to pay cash dividends or repurchase shares. In further tests, I find that equity incentive compensation in the independent director pay structure is the most pervasive determinant across other dividend measures such as dividend payout, total payout and repurchases. Overall, the findings suggest that the characteristics of independent directors are important determinants of the payout policy. The results also suggest that future corporate governance research could benefit from incorporating characteristics of independent directors rather than limiting governance measures to board independence especially when recent empirical evidence (Linck et al., 2008, 2009) shows convergence, and therefore, narrowing variation in the proportion of outsiders and insiders on a board.     

Founders and board structure: Evidence from UK IPO firms

This study investigates whether a company's founders affect the combination of executive, grey and independent directors on its board at the time of initial public offering (IPO) in the UK. Particularly, we analyse how venture capitalists are associated with board structure in founder-managed and non-founder-managed firms. We find that UK IPO firms managed by founders tend to have more executive directors. Further, they are more likely to stack non-executive directors with more independent directors relative to grey directors. Venture capital ownership is not significantly associated with board structure at the IPO stage. However, further evidence suggests that venture capital ownership is negatively related to the percentage of executive directors and positively related to the percentage of grey directors in the founder-managed firms.