Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions

This paper investigates the effects on acquisitions of creditor-director presence on corporate boards. Using a hand-collected dataset for boards of large U.S. corporations, we find that companies with creditor-directors are more likely to engage in acquisitions with attributes that are unfavorable to shareholders and favorable to creditors (more diversifying and fewer cash-financed acquisitions). Consistent with these patterns, acquisition announcements are associated with lower shareholder value, higher creditor value, and lower overall firm value when a creditor is present. These results support the hypothesis that conflicts of interest between shareholders and creditors can result in value-destroying acquisitions. In addition, commercial bankers with no lending relationship are not affected by conflicts of interest. Where appropriate, our estimation strategy takes into account that there may be self selection of bankers onto corporate boards.     

Industry expertise on corporate boards

Recent surveys indicate that industry expertise is the most sought-after director qualification. Yet evidence on the value of such expertise is limited. This paper shows that firms that are difficult for non-experts to monitor and advise are more likely to appoint industry expert directors. Such appointments also depend on the supply of industry-experienced candidates in the local director labor market. Board industry expertise reduces R&D-based real earnings management and increases R&D investments. The increase in R&D spending is value-enhancing: firms with industry expert directors receive more patents for the same level of R&D, their R&D spending is associated with lower volatility of future earnings, and their value is higher. Finally, industry expertise is associated with CEO termination and pay incentives that encourage R&D investments.     

Dominant shareholders,corporate boards,and corporate value: A cross-country analysis

We investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries. We find a positive relation, especially in countries with weak legal protection for shareholders. The findings suggest that a dominant shareholder, were he so inclined, could offset, at least in part, the documented value discount associated with weak country-level shareholder protection by appointing an ‘independent’ board. The cost to the dominant shareholder of doing so is the loss in perquisites associated with being a dominant shareholder. Thus, not all dominant shareholders choose independent boards.     

Tracing back to the source: Understanding the corporate governance of boards of directors in Chinese SOEs

Based on the relevant theories of corporate governance and the special institutional background of Chinese state-owned enterprises (SOEs), this paper systematically reviews the literature on the independence and governance effect of SOE boards. We find that the governance effect of SOE boards is driven by the dual characteristics of SOEs: state involvement in ownership and market incentives. With the state involved in ownership, SOEs adhere to the leadership of the Communist Party of China (CPC), which results in an enhanced governance effect. Under market incentives, SOEs tend to have an optimal board structure that helps mitigate both the shareholder–management agency problem (Type I agency problem) and the controlling shareholder–minority shareholder agency problem (Type II agency problem). In terms of the governance effect of boards, directors appointed by non-controlling shareholders are effective in alleviating Type I and Type II agency problems, and this highlights the importance of mixed-ownership reforms in SOEs. Independent directors, especially those with a professional background, also play a role in improving corporate governance. However, independent directors in SOEs have relatively weak incentives to monitor, which limits their governance effect. This paper shows positive implications for promoting mixed-ownership reforms and improving board governance in SOEs.     

Perceived importance of corporate boards in October 1987

This study provides empirical evidence from the U.S. firms that shareholders perceived corporate boards to be more important during than surrounding the October 1987 stock market crisis. The results indicate that during the crisis market-adjusted stock returns are negatively associated with CEO–chair duality, board size, and the presence of inside blockholders on board. The valuation effects of CEO–chair duality, percent of inside directors, and the presence of inside blockholders on board are stronger during than surrounding the crisis. The results are consistent with the view that corporate boards have valuation effects.     

Staggered boards,corporate opacity and firm value

We explore the effect of corporate opacity on the relation between staggered boards and firm value. We find that through mitigating takeover pressure, staggered boards become increasingly beneficial to firm value as opacity increases. In addition, we document that staggered boards reduce value only in transparent firms. Additional tests indicate that, as opacity increases, staggered boards bear an increasingly positive relation to research and development and CEO pay-performance sensitivity. Taken together, these results suggest that corporate opacity affects the value impact of takeover protection.     

Does good corporate governance include employee representation? Evidence from German corporate boards

Within the German corporate governance system, employee representation on the supervisory board is typically legally mandated. We propose that such representation of labor on corporate boards confers valuable first-hand operational knowledge to corporate board decision-making. Indeed, we find that labor representation provides a powerful means of monitoring and reduces agency costs within the firm. Moreover, we show that the greater the need for coordination within the firm, the greater the potential improvement there is in governance effectiveness through the judicious use of labor representation. These benefits do not appear to hold for union representatives.     

The diversity of expertise on corporate boards in Australia

Expertise diversity is expected to enhance the monitoring and advising functions of boards of directors. Yet, little is known about the expertise that actually exists on corporate boards. In this study, we examine the diversity of professional expertise on corporate boards in Australia and implications for shareholder value. We categorise directors by 11 types of professional expertise and find the most common types of expertise are business executives, accountants, bankers, scientists, lawyers and engineers. We find that expertise diversity is primarily related to board size, industry and location. Our analysis also suggests that shareholders benefit when boards diversify their expertise within a subset of specialist business expertise (lawyers, accountants, consultants, bankers and outside CEOs). Further diversity beyond this subset of expertise is associated with lower firm value and performance.     

Women on boards of directors and corporate philanthropic disaster response

In this study we conduct firm-level analysis of the impact of women in the boardroom on corporate philanthropic disaster response (CPDR). We propose that CPDR contains agency costs and that female directors are more likely to restrain the associated agency costs of CPDR. We predict a negative relationship between the ratio of women on boards of directors (WoBs) and philanthropic contribution, which is weaker in firms with political connections and stronger in firms with better-developed institutional environments. Data was collected from the philanthropic responses to the Wenchuan earthquake on May 12, 2008 of privately-owned listed Chinese firms. The results support the hypothesized negative relationship, which is found to be weaker in firms with political connections. However, marketization-related factors do not significantly moderate this relationship. These results indicate that CPDR contains agency costs and that female directors do not facilitate the corporate donation process, but rather evaluate the benefits and restrain the associated agency costs.     

The impact of cultural diversity in corporate boards on firm performance

We examine the impact of cultural diversity in boards of directors on firm performance. We construct a measure of national cultural diversity by calculating the average of cultural distances between board members using Hofstede's culture framework. Our findings indicate that national cultural diversity in boards negatively affects firm performance measured by Tobin's Q and ROA. These results hold after controlling for potential endogeneity using firm fixed effects and instrumental variables regressions. Further, the results are robust to controlling for a wide range of board and firm characteristics, including various measures of “foreignness” of the firm, alternative culture frameworks, and other measures of culture. The negative impact of cultural diversity on performance is mitigated by the complexity of the firm and the size of foreign sales and operations. In addition, we find that the negative effects of cultural diversity are concentrated among the independent directors. Finally, we find that not all aspects of cultural differences are equally important and that it is mainly the diversity in individualism and masculinity that affects the effectiveness of boards of directors.     

The structure of corporate boards and private benefits of control: Evidence from the Russian stock exchange

This paper revisits the role of board size and composition in corporate governance, employing a measure of private benefits of control (PBC) as an indicator of governance problems in firms. We calculate PBC using the voting premium approach for a sample of dual class stock companies traded on the Russian stock exchange between 1998 and 2009. Using fixed-effects regressions, we find a quadratic relationship between PBC and board size, implying the optimality of medium-sized (about 11 directors) supervisory boards. This result is substantially stronger for PBC than traditional measures of corporate performance. There is also some evidence that director ownership helps to mitigate governance problems. Most remarkably, we find that non-executive/independent directors are associated with larger PBC and thus do not seem to help improve corporate governance. In contrast, regressions with accounting performance measures as dependent variables tend to suggest a positive role of these directors in corporate governance.     

Determinants of corporate tone in an initial public offering: Powerful CEOs versus well-functioning boards

Recent literature on initial public offerings (IPOs) suggests a significant effect of tone in IPO underpricing but ignores its determinants. This study concentrates on the factors that shape the tone of the information disclosed in IPOs. Sampling 211 Latin American IPOs during the period 2000–2019, we find empirical evidence that a powerful CEO can influence tone, avoiding unfavorable tone and fostering the use of positive words in the information disclosed to the market. We also show that more independent boards tend to use more unfavorable tones. Additionally, we find a non-monotonic relationship between board size and the tone in the prospectus, which suggests that an optimal board size mitigates the excessive use of positive tone and leads to more unfavorable tones in the IPO prospectus. Overall, well-functioning boards counterbalance powerful CEOs and generate more realistic disclosure to the market. Finally, we find that market-dominant auditors, age of the issuing firm, proposed use of proceeds, and the number of risk factors significantly affect the tone in the information disclosed.     

Ethnic board diversity,earnings quality and institutional investors: evidence from Malaysian corporate boards

Motivated by calls to examine the issue of board diversity in emerging economies, this study explores the association between ethnic board diversity and earnings quality; and the moderating effect of institutional investors’ ownership. In a sample of Malaysian firms, we find that boards with higher ethnic diversity are associated with higher earnings quality. Consequently, our findings suggest that institutional investors prefer boards to be ethnically diverse. Consistent with geographical proximity theory, this effect is primarily driven by domestic institutional investors. Finally, we find that political connection attenuates the association between ethnic board diversity and higher earnings quality.     

Tradeoff between corporate investment and CSR: The moderating effect of financial slack,workforce slack,and board gender diversity

This paper investigates the existence of a tradeoff between corporate investment (i.e., tangible and intangible) and corporate social responsibility (CSR) in the presence of the moderating effects of financial slack, human resources slack, and board gender diversity. Based on an international sample of 44,129 firm-year observations between 2005 and 2019, we find that corporate investment leads to significantly lower CSR engagement in all three pillars (i.e., environmental, social, and governance). Furthermore, while financial slack positively moderates between corporate investment and CSR, human resources slack and board gender diversity negatively moderate between corporate investment and CSR. This outcome is robust in terms of endogeneity concerns, alternative sampling, alternative investment proxies, CSR regulations, and timing impacts. Hence, we find the dominance of the shareholders' perspective rather than the stakeholders' perspective. The results outline the tradeoff between corporate investment and CSR and the role of contingencies in this tradeoff relationship.     

Hail to the chief: The effect of political alignment with the presidency on corporate investment

We examine the effect of political alignment between the CEO and the US president on corporate investment. We find that when the CEO is from the same party as the President that the adverse effects of policy uncertainty on corporate investment are significantly reduced or eliminated. We arrive at this result after having controlled for investment opportunities, economic uncertainty, and political alignment with Congress. We also find that the political alignment between the CEO and the President has a greater effect on corporate investment for firms in industries with significant exposure to government spending. Our results go to confirm the effects of a country's politics and the occupier of the White House on CEOs’ business and economic outlooks. The results also point out that the effect of the behavioral traits of executives changes depending on the external environment.     

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.     

Board gender quotas,female directors and corporate tax aggressiveness: A causal approach

As a result of a mandatory board gender quota regulation, the percentage of female directors in Norway increased from around 5% in 2001 to over 40% in 2007, while it remained stable in neighbouring Denmark. Taking advantage of this unique research setting, this study implements a difference-in-differences approach to investigate the effects of the gender composition of the board of directors on corporate tax aggressiveness. Results indicate that the likelihood of corporate tax aggressive strategies increased in Norway after the appointment of many female directors, compared to the situation in Denmark. This finding is robust to a battery of sensitivity analyses and, in particular, to how corporate tax aggressiveness is measured. We interpret this result as caused by the way in which the incorporation of women to the boards was achieved, that is, through a mandatory board gender quota regulation. Possible implications of the findings are discussed.