The impact of corporate governance on Internet financial reporting

This study examines the association between corporate governance mechanisms and disclosure transparency measured by the level of Internet financial reporting (IFR) behavior. We measure corporate governance by shareholder rights, ownership structure, board composition, and audit committee characteristics. We develop a disclosure index to measure the extent of each sample firm’s IFR by presentation format, information content, and corporate governance disclosures. Results indicate that firms with weak shareholder rights, a lower percentage of blockholder ownership, a higher percentage of independent directors, a more diligent audit committee, and a higher percentage of audit committee members that are considered financial experts are more likely to engage in IFR. The findings suggest that corporate governance mechanisms influence a firm’s Internet disclosure behavior, presumably in response to the information asymmetry between management and investors and the resulting agency costs. Additional exploratory analysis indicates that the association between corporate governance and IFR varies with firm size. Our results suggest that new regulatory guidance in corporate governance leads to improved disclosure transparency via IFR.     

The role of managerial incentives in corporate acquisitions: the 1990s evidence

This paper examines the relationship between the likelihood a firm is acquired and the governance and financial characteristics of the firm. Given many of the developments in the corporate control market in the late 1980s, I suspect that the process governing takeover likelihood may have changed in the 1990s. I examine a sample of 342 NYSE/AMEX firms that were acquired during the 1990–1997 period and compare them to a matched sample of nonacquired firms. I find that firms that were acquired over this period can be characterized as having lower managerial ownership and higher ownership by outsiders, particularly higher ownership by nonmanagement blockholders with board representation. The fact that managerial ownership is negatively related to takeover likelihood is consistent with studies using data from 1970s and 1980s. This suggests that managerial ownership helps managers maintain control, or alternatively that ownership proxies for how much managers care about control.     

Financial distress,corporate control,and management turnover

We empirically investigate the effect of financial distress on corporate ownership and control. Our analysis is based on a panel of 267 German firms that suffered from repeated interest coverage shortfalls between 1996 and 2004. We track each firm’s development over the distress cycle with particular attention to corporate ownership, restructuring, and management turnover. We find a significant decrease in ownership concentration. Private investors gradually give up their dominating role and thereby cease to be an effective source of managerial control. By contrast, ownership representation by banks and outside investors almost doubles. Shareholdings by executive and non-executive directors also substantially increase but have no effect on managerial tenure. Forced management turnover is mostly initiated by outside investors and banks and often occurs subsequent to debt restructurings, block investments, and takeovers.     

Corporate board and board committee independence,firm performance,and family ownership concentration: An analysis based on Hong Kong firms

This study examines whether the relationship between corporate board and board committee independence and firm performance is moderated by the concentration of family ownership. Based on a sample of Hong Kong firms, we find no significant association between the independence of corporate boards or board committees and firm performance in family firms, whereas board independence is positively associated with firm performance in non-family firms. Additionally, our findings show that the proportion of independent directors on the corporate boards of family firms is lower than that of non-family firms, but we find no significant difference in the representation of independent directors on the key committees of corporate boards between family and non-family firms. Overall, these results suggest that the “one size fits all” approach required by the regulatory authorities for appointing independent directors on corporate boards may not necessarily enhance firm performance, especially for family firms. Thus, the requirement to appoint independent directors to the corporate boards of family firms needs to be reconsidered.     

Attendance of board meetings and company performance: Evidence from Taiwan

This paper empirically investigates board meeting attendance and its effects on the performance of Taiwanese listed corporations. Directors with higher qualifications attend board meetings more often by themselves. The ownership of the largest shareholder of a company also has a positive effect on director’s own meeting attendance. High meeting attendance by directors themselves can enhance a firm’s performance but high attendance by their representatives has an adverse effect. Independence of directors or a board is also positively associated with firm performance. These results largely hold even when the sample is decomposed to count for different ownership structures and director types.     

Determinants of corporate ownership and board structure: evidence from Singapore

This study examines the determinants and interrelationships among corporate ownership and board structure characteristics using a sample of Singapore listed firms. The institutional environment in Singapore differs from that in many developed Western economies in several important respects, including a weak market for corporate control, more concentrated stock ownership, and significant government ownership in many private sector firms.Three characteristics—board composition, board leadership structure and board size—are used to capture the monitoring ability of the board. These board characteristics are assumed to be endogenously determined, together with two ownership characteristics, managerial ownership and blockholder ownership. We use two-stage least squares regression to estimate the determinants of board and ownership characteristics. Our findings indicate that corporate ownership and board structures are related, and that there are significant interrelationships among board structure characteristics. The proportion of outside directors is negatively related to managerial ownership, board size and government ownership. The use of a dual leadership structure is positively related to blockholder ownership, and negatively related to regulation and to CEO tenure.     

Ownership structure,corporate governance,and fraud: Evidence from China

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. In particular, the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Our findings have implications for the design of appropriate corporate governance systems for listed firms. Moreover, our results provide information that can inform policy debates within the CSRC.     

Controlling shareholders,board structure,and firm performance: Evidence from India

We examine the prevalence and performance impact of controlling shareholders and study corporate board structures and ownership structures in 1796 Indian firms. Families (founders) are present on the boards in 63.2 (65.5) percent of the sample firms. On average, founders own over 50% of outstanding shares. In contrast to the findings of Anderson and Reeb (2003) in the U.S. context, we find that controlling shareholder board membership in Indian firms has a statistically significant negative association with Tobin's Q. Higher proportion of independent directors, higher institutional ownership or larger firm size does not appear to mitigate this relationship. Overall, board membership of controlling shareholders appears to be costly for minority shareholders.     

Board of director characteristics and earnings quality surrounding implementation of a corporate governance code in Mexico

Mexico recently enacted a corporate governance code. One objective of the code is to improve board of director oversight and to reveal more transparent information to shareholders by including detailed information regarding the structure of the board and its functions. Research in the U.S. has documented improvement in earnings quality associated with board characteristics. Whether or not board characteristics are associated with improved earnings quality in Mexico is questionable given the business environment in which firms operate, characterized by controlling family ownership and weak legal protection of property rights. The purpose of this study is to investigate whether or not board characteristics other than compliance with board independence (board composition disclosure, family concentrated ownership and shared-directors) are associated with the improvement in earnings quality found in previous research. Earnings quality is measured using income smoothing, timely loss recognition and conditional accruals. We find firms that do not have concentrated family ownership or share directors have greater increases in earnings quality than firms that have concentrated family ownership or share directors. We conclude that applying board-level corporate governance reforms, without considering cultural and legal environments, may limit the desired effects of the change.     

Corporate governance and incidences of listing suspension by the JSE Securities Exchange of South Africa: An empirical analysis

We examine the association between corporate governance structures and incidences of listing suspension from the JSE Securities Exchange of South Africa. Using a matched-pairs research design, we compare 81 firms suspended between 1999 and 2005 to an equal number of control firms matched in terms of time, size and industry. Employing a conditional logistic model, we find that the likelihood of suspension is higher in firms with a smaller proportion of non-executive directors, without an audit committee, and with greater block-share ownership and higher gearing (i.e. leverage). Further analysis splitting block-share ownership into institutional and non-institutional investors provides mixed results. While we find a positive association between suspension and non-institutional investors, we observe no association with institutional investors. No association is detected for board size, role duality, directors' share ownership, auditor quality and return on assets. Given the paucity of studies examining listing suspension from stock exchanges and corporate governance mechanisms, these findings contribute to the literature. Additionally, the dearth of research on corporate governance in developing countries suggests that our findings have important implications for policy makers in these countries as they endeavor to improve corporate governance.     

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.     

Board composition,grey directors and corporate failure in the UK

This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs' personal or economic ties with the firm and its management on firm performance. We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have over emphasised the monitoring function of independent directors and underestimated the benefits of NEDs' affiliations with the firm and its management.     

A note on board characteristics,ownership structure and default risk in Taiwan

This study applies dynamic generalized method of moments estimation to examine the influences of ownership structure and board characteristics on default risk for a full samples and two subsamples (high‐tech and conventional) of publicly listed firms in Taiwan. Our findings reveal that certain characteristics of corporate governance have explanatory power for default probability, but the impact is not straightforward. In particular, the impact of internal and external governance structures on default risk is industry dependent. Accordingly, governance proposals that encourage higher ownership among directors and large block shareholdings in high‐tech firms or reduce managerial ownership in conventional companies can have a counterproductive effect on corporate governance and result in higher bankruptcy possibility.     

Bank power,block ownership,boards and financial distress likelihood: An investigation of Spanish listed firms

We investigate the effects of bank power, block ownership and board independence on the likelihood of financial distress. Using a matched sample design, we find that firms in which banks have power are more likely than their counterparts to enter financial distress. However, the bank power effects are moderated by block ownership and board independence. Specifically, on the one hand, financial distress due to bank power is lower for firms with greater ownership by pressure resistant blockholders and such blockholders appear to be the largest blockholder in the firm. The bank power effects are also lower in firms with greater outside directors and this appears to be primarily driven by proprietary directors than independent directors. On the other, we document evidence suggesting that the bank power effects are magnified for firms in which the board chair is a proprietary director aligned to non-financial blockholders or CEO/Chair, suggesting that banks might partly influence decisions via board chairs. Overall, the findings are consistent with bank power actions being detrimental to the firm, but the extent to which such actions harm the firm depends on the monitoring intentions of blockholders and/or board of directors. These findings have important implications for policymakers.     

Performance and governance in microfinance institutions

We examine the relationship between firm performance and corporate governance in microfinance institutions (MFI) using a self-constructed global dataset on MFIs collected from third-party rating agencies. Using random effects panel data estimations, we study the effects of board and CEO characteristics, firm ownership type, customer-firm relationship, and competition and regulation on an MFI’s financial performance and outreach to poor clients. We find that financial performance improves with local rather than international directors, an internal board auditor, and a female CEO. The number of credit clients increase with CEO/chairman duality. Outreach is lower in the case of lending to individuals than in the case of group lending. We find no difference between non-profit organisations and shareholder firms in financial performance and outreach, and we find that bank regulation has no effect. The results underline the need for an industry specific approach to MFI governance.     

The influence of director stock ownership and board discussion transparency on financial reporting quality

Seventy-two active corporate directors participate in an experiment where management insists on aggressive recognition of revenue, but the chief audit executive proposes a more conservative approach. Results indicate interactive effects of director stock ownership and the transparency of director decisions. Stock-owning directors are more likely to oppose management’s attempts to manage earnings when transparency increases. For non-stock owning directors, however, increasing transparency does not affect the likelihood that directors oppose management’s attempts to manage earnings. The current study challenges suppositions that equate director stock ownership with improved financial reporting and higher corporate governance quality, and it provides evidence that increased transparency is beneficial when director compensation plans threaten director independence.     

Board interlocks and the propensity to be targeted in private equity transactions

We examine how board networks affect change-of-control transactions by investigating whether directors’ deal exposure acquired through board service at different companies affect their current firms’ likelihood of being targeted in a private equity-backed, take-private transaction. In our sample of all US publicly traded firms in 2000–2007, we find that companies which have directors with private equity deal exposure gained from interlocking directorships are approximately 42% more likely to receive private equity offers. The magnitude of this effect varies with the influence of directors on their current boards and the quality of these directors’ previous take-private experience, and it is robust to the most likely classes of alternative explanations—endogenous matching between directors and firms and proactive stacking of board composition by management. The analysis shows that board members and their social networks influence which companies become targets in change-of-control transactions.     

The connection between gender diversity and firm performance: Evidence from Taiwan

This paper examines the factors influencing female board membership in Taiwan over the period from 1996 through 2017 and the potential impact of female board representation on firm performance. With 16,477 firm-year observations, our findings show that Taiwanese firms with higher board independence and institutional ownership tend to have lower female board representation. In examining performance implications, the results suggest that board gender diversity is positively associated with firm performance overall. This positive relationship is even stronger in small firms, where female directors may have more influence. In subsample analysis based on lowest and highest ultimate control ownership, we document that the positive impact of board gender diversity is mainly driven by firms that have high ultimate control ownership. Our findings suggest that, in environments with weak corporate governance, female board members may act as effective monitors, especially in smaller firms. Regulators and firms in developing economies with weak corporate governance environment should encourage gender diversity on boards.     

The American keiretsu and universal banks: Investing,voting and sitting on nonfinancials’ corporate boards

This paper investigates the equity investments and voting rights that American banks control through their trust business. The paper also studies whether the voting rights American banks control through their trust business help explain their presence on firms’ corporate boards. We find that on average the largest 100 American banks control 10% of the voting rights of S&P 500 firms. We also find that there are several firms in the S&P 500 index in which the top banks control more than 20% of their voting rights, and several firms in the country in which these banks control more than 60% of their voting rights. Our investigation into the presence of American bankers on corporate boards shows that bankers are more likely to join the boards of firms in which they control a large voting stake. We also find that banks’ lending relationships help explain bankers’ board memberships. Our results further show that bankers who have both a voting stake in a firm and a lending relationship with it have a higher likelihood of joining the firm's board of directors.