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.     

Corporate lobbying,CEO political ideology and firm performance

In this paper, we investigate the influence of CEO political orientation on corporate lobbying efforts. Specifically, we study whether CEO political ideology, in terms of manager-level campaign donations, determines the choice and amount of firm lobbying involvement and the impact of lobbying on firm value. We find a generous engagement in lobbying efforts by firms with Republican leaning-managers, which lobby a larger number of bills and have higher lobbying expenditures. However, the cost of lobbying offsets the benefit for firms with Republican CEOs. We report higher agency costs of free cash flow, lower Tobin's Q, and smaller increases in buy and hold abnormal returns following lobbying activities for firms with Republican managers, compared to Democratic and Apolitical rivals. Overall, our results suggest that the effects of lobbying on firm performance vary across firms with different managerial political orientations.     

An agency-based perspective on the performance consequences of COO adoption

The aim of this study is to explain the performance consequences of the adoption of a Chief Operating Officer (COO) position by drawing from agency theory. Although, prior research has documented a performance penalty associated with the use of this position, we currently have an incomplete understanding of the factors explaining this penalty. This study suggests that the delegation of CEO decision rights to the COO is explained by information transfer and agency considerations. Largely consistent with agency theory, our empirical analysis suggests information transfer considerations are related to the likelihood of COO adoption, while CEO ownership and board characteristics mitigate the related performance penalty.     

Are Interlocked Directors Effective Monitors?

This paper examines whether the presence of interlocked directors on a board is associated with weak governance. For a sample of 3,566 firm‐years spanning 2001 to 2003, we find that firms with lower industry‐adjusted firm performance are more likely to have interlocked directors. We document that shareholders react negatively to the formation of director interlocks and find that the presence of interlocked directors is associated with lower than optimal pay‐performance sensitivity of CEO incentive compensation and reduced sensitivity of CEO turnover to firm performance. Collectively, our results suggest that the presence of interlocked directors is indicative of weak governance.     

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.     

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.     

The impact of voluntary audit and governance characteristics on accounting errors in private companies

This paper examines the extent to which the audit and corporate governance characteristics of UK private companies are associated with defective accounting information. Despite the economic importance of private firms, relatively little is known about their financial reporting and governance characteristics. Using a large sample of UK private companies, we examine the effects of voluntary audit, board gender balance and financial expertise on the likelihood of errors occurring in published annual accounts. Our results indicate that audited accounts are approximately half as likely as unaudited accounts to contain errors. In addition to contributing to recent academic research in this field, our findings are likely to be of interest to policy makers, who are considering exempting more firms from mandatory audit. We also find that gender diversity among board members is positively associated with the accuracy of accounting information, though our primary measure of directors’ financial expertise has no significant effect.     

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.     

The discretionary effect of CEOs and board chairs on corporate governance structures

In this study we analyze the effect of latent managerial characteristics on corporate governance. We find that CEO and board chair fixed effects explain a significant portion of the variation in board size, board independence, and CEO-chair duality even after controlling for several firm characteristics and firm fixed effects. The effect of CEOs on corporate governance practices is attributable mainly to executives who simultaneously hold the position of CEO and board chair in the same firm. Our results do not show a decline in CEO discretionary influence on corporate governance after the enactment of the Sarbanes–Oxley Act and stock exchange governance regulations.     

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 determinants and effects of CEO–employee pay ratios

We study the determinants and effects of the relative compensation of top executives and lower-level employees. First, we show that CEO–employee pay ratios depend on the balance of power between the CEO (relative to the board) and ordinary employees (relative to management). Second, our results suggest that employees do not perceive higher pay ratios as an inequitable outcome to be redressed via costly behaviors that lower productivity. We do not find a negative relation between relative pay and employee productivity, either in our full sample or in subsamples where employees are well-informed about executive pay and are protected against career retributions. Rather, we find that productivity increases with relative pay when the firm has fewer employees who are well-informed, and when promotion decisions are predominantly merit-based. We also find that firm value and operating performance both increase with relative pay. We conclude that ordinary employees appear to perceive an opportunity in higher pay ratios but the extent to which such perception incentivizes them depends on the likelihood of success in a series of sequential promotion tournaments.     

董事会留有前任总经理会如何影响公司资源调整？——基于成本粘性视角的实证分析

本文从成本粘性这一视角,研究了董事会留有前任总经理对公司资源调整的影响。结果发现,董事会留有前任总经理会提高成本粘性,此效应在管理层持股比例较低、非国有控制和行业竞争程度较低的公司中更强;进一步研究还发现,前任总经理无论是留任为董事长还是其他董事,都会提高成本粘性;无论是在家族企业还是非家族企业,董事会留有前任总经理均能提高成本粘性。上述结果表明董事会留有前任总经理会导致公司资源投入“易增难减”,其原因是前任总经理会阻止公司向下调整资源。从前任总经理积累的知识、经验和社会关系对资源调整成本的影响和前任总经理对现任管理层代理问题的影响这两个视角不能完全解释上述结果。本文既从成本粘性这一视角增进了我们对董事会留有前任总经理的经济后果的认识,也从董事会留有前任总经理这一视角丰富了成本粘性影响因素的研究,有助于政府部门规范公司在董事会中留任前任总经理的行为,对公司通过调整董事会结构以提高资源配置效率也具有启示意义。     

Board gender composition,board independence and sustainable supply chain responsibility

The consideration of social and environmental factors in companies’ supply chain is a prevalent research topic because stakeholders are now inquisitive about the social and environmental impacts of companies’ suppliers. Using a sample of S&P 500 firms, we find that board gender composition and board independence are positively associated with sustainable supply chain responsibility (SSCR). We also identify three channels (CEO duality, sustainability committee and sensitive industries) through which board gender composition and board independence affect SSCR, where board gender composition consistently explains SSCR, but the effect of board independence is less pronounced in firms with CEO duality and firms with a sustainability committee. Finally, we explore the reason for the less-pronounced findings for board independence in our subsample analyses and find that, compared with independent female directors who continue to display significant associations with SSCR, independent male directors do not engender SSCR across the three subsample tests.     

External Networking and Internal Firm Governance

We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO‐director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO‐director ties engage in more value‐destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.     

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.     

Top Director Shake‐up: The Link between Chairman and CEO Dismissal in the UK

Abstract:   Most UK companies separate the roles of CEO and Chairman. The former runs the company and the latter runs the board. Using turnover data on 2,180 separate Chairmanships of the top 460 UK firms over the 1990–1998 period, I find that the Chairman is more likely to be replaced when the CEO is dismissed. Detailed data on the dismissal events suggests that Chairman replacement is associated with board restructuring. This may be necessary to bring in different skills and experience which, in turn, might facilitate changes in future corporate decisions. Moreover, I find that the Chairman's previous position, or the type of Chairmanship, does not affect the association between Chairman removal and CEO dismissal. But, the increase in the dismissal likelihood of the Chairman at the time of forced CEO departure is higher when she is involved in the appointment of the failing CEO. This, in turn, can be interpreted as an indication of effective governance.     

Corporate governance and chief executive officer dismissal following poor performance: Australian evidence

This paper investigates the association between corporate performance and the probability of chief executive officer (CEO) dismissal for large corporations in Australia. Consistent with prior US and UK studies, corporate performance is negatively related to the probability of CEO dismissal, using both accounting and market‐based performance measures. This paper also investigates whether key corporate governance characteristics affect the likelihood of CEO dismissal, by examining their effect on the strength of the negative association between corporate performance and CEO dismissal. The only significant variable is size of the board. Although its effect is opposite to that hypothesized, this paper provides a plausible explanation. Overall, the results are consistent with shareholder wealth considerations dominating board behaviour in Australia.     

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.     

Bank CEO careers after bailouts: The effects of management turnover on bank risk

We study whether bank bailouts affect CEO turnover and its subsequent impact on bank risk. Exploiting the Troubled Asset Relief Program (TARP) of 2008, we find that TARP funds temporarily decreased the likelihood of bank CEO turnover during the crisis (2008–2010) but significantly increased CEO changes afterwards. Our results show that replacing TARP CEOs reduced individual bank's risk as well as the bank's contributions to the systemic risk. Finally, we find that TARP CEO turnover was mainly driven by a decrease in the bank's political capital. Overall we provide evidence that bank bailouts have important implications for banks’ risk-taking and systemic risk, insofar as bailouts affect bank CEO turnover.     

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.