The determinants of board size and composition: Evidence from the UK

This paper examines the trends and determinants of board structure for a large sample of UK firms from 1981 to 2002. We extend the predominantly US based literature in a number of important ways. Firstly, a comparative analysis of the UK and US legal and institutional settings leads us to hypothesize that UK boards will play a weaker monitoring role and hence board structures will not be determined by monitoring related factors. Our evidence supports this conjecture, showing that board structure determinants differ in predictable ways across different institutional settings. Secondly, in contrast to recent US mandatory reforms, UK reforms have been voluntary. As such they provide an interesting comparison, being arguably more effective than a mandatory approach by allowing firms to choose board structures most appropriate for their own needs. Our results support this point of view. Although the UK reforms do have a significant impact on board structures, a large number of firms choose not to comply, and those that do appear to do so for strong economic reasons. The reforms also appear to reduce the ability of well performing CEOs to influence board structures.     

The determinants of corporate board size and composition: An empirical analysis

Using a unique panel dataset that tracks corporate board development from a firm's IPO through 10 years later, we find that: (i) board size and independence increase as firms grow and diversify over time; (ii) board size—but not board independence—reflects a tradeoff between the firm-specific benefits and costs of monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on that influence. These results indicate that economic considerations—in particular, the specific nature of the firm's competitive environment and managerial team—help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained, suggesting that idiosyncratic factors affect many individual boards’ characteristics.     

The impact of board composition and family ownership on audit committee formation: Evidence from Hong Kong

This study investigates empirically the relationship between three major corporate governance attributes (family shareholding, non-executive directors and independent chairman) and the existence of audit committees across a sample of 397 publicly traded firms in Hong Kong. The results show that at a medium level of family shareholding (between 5% and 25%), the convergence-of-interest effect is dominant and the existence of audit committees decreases. At a high level of family shareholding (more than 25%), the entrenchment effect is dominant and as a result, the existence of audit committees increases. In addition, we show that the response of investors to audit committee existence is not dependent upon family shareholding when there is an independent chairman. The findings of our study also suggest that there is a positive association between the proportion of independent non-executive directors on the corporate board and audit committee existence. In addition, the results show that the positive association between independent non-executive directors is stronger for firms with an independent chairman. Implications of these findings for regulators are discussed.     

The Corporate Governance Role of the Media: Evidence from Russia

We study the effect of media coverage on corporate governance by focusing on Russia in the period 1999 to 2002. We find that an investment fund's lobbying increases coverage of corporate governance violations in the Anglo-American press. We also find that coverage in the Anglo-American press increases the probability that a corporate governance violation is reversed. This effect is present even when we instrument coverage with an exogenous determinant, the fund's portfolio composition at the beginning of the period. The fund's strategy seems to work in part by impacting Russian companies' reputation abroad and in part by forcing regulators into action.     

The determinants of price discovery: Evidence from US-Canadian cross-listed shares

We examine the determinants of price discovery for Canadian firms cross-listed on the main US stock exchanges over the period 1996–2011. Sampling at a one-minute frequency, we compute Gonzalo and Granger Component Shares (CS) and employ a system GMM approach to control for persistence in price discovery and endogeneity between CS and its determinants. We find that price discovery is highly persistent and that there is strong evidence of simultaneity between CS and its determinants. We conclude that lower relative spreads and higher relative trading activity increase an exchange’s contribution to price discovery. We also document that it is small trades that drive price discovery, particularly since the introduction of decimalization.     

Determinants of board structure: Evidence from Australia

Linck et al. (2008) investigate the determinants of board structure in the US, an environment that features high litigation risk and low ownership concentration. In contrast, using a hand-collected data set that includes information from more than 1000 firms, this paper investigates the determinants of board structure in Australia, an environment that features low litigation risk and high ownership concentration. Multivariate analyses suggest that whereas board size and board independence increase with firm size, CEO duality decreases with firm size. Additional tests suggest that high ownership concentration increases board size, decreases board independence and increases CEO duality. These results imply that if high litigation risk against directors (as in the US) plays a monitoring role in corporate governance, ownership concentration appears to offer an alternative governance mechanism in countries such as Australia, which feature low litigation risk.     

Profiting from government stakes in a command economy: Evidence from Chinese asset sales

We examine the market response to an unexpected announcement of the sale of government-owned shares in China. In contrast to earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect from the policy's cancellation. We suggest that this results from the absence of a Chinese political transition to accompany economic reforms, so that the benefits of political ties outweigh the efficiency costs of government shareholdings. Companies managed by former government officials have positive abnormal returns, suggesting that personal ties can substitute for government ownership as a source of connections.     

The determinants of global bank lending: Evidence from bilateral cross-country data

This paper finds that factors determined outside of a country, at the quarterly frequency and especially after 2008, are more closely related to the global bank loans it receives. These loans are generally more stable when global banks face more competition and have a higher presence in the recipient country. We obtain our results by using bilateral lending data from 15 countries and a unique methodology to identify and compare the independent effects of external and internal factors. We identify theoretical mechanisms that can explain our empirical findings and draw more detailed inferences for competition and global bank presence by solving a simple model of global banking.     

The determinants of corporate cash management policies: Evidence from around the world

We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firms in countries with weak legal protection. This relationship is most pronounced for firms that are financially constrained and those with high hedging needs. More importantly, we do not find evidence that financial development plays an incremental impact on the cash flow sensitivity of cash, after controlling for the effect of legal protection. Therefore, we argue that the legal protection of investors (rather than financial development) represents the first-order effect in influencing international firms' cash management policies. The results are robust to alternative specifications. In general, our findings reinforce the importance of country-level legal protection of investors in mitigating the effects of firm-level financial constraints and hedging needs on corporate cash management policies.     

The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms

This paper examines the determinants of thinly capitalized structures of publicly-listed Australian firms. Based on a hand-collected sample of 203 publicly-listed Australian firms over the 2006–2009 period (812 firm-years), our regression results indicate that the thin capitalization position of firms is significantly and positively associated with multinationality, tax haven utilization, withholding taxes and tax uncertainty. Multinationality and the use of tax havens are, in particular, strongly associated with thin capitalization. Our additional regression results provide evidence that shows that corporate governance monitoring mechanisms relating to board of director independence, institutional ownership and big-4 auditor utilization are significantly negatively associated with firms adopting thinly capitalized tax avoidance structures.     

Consumption-smoothing in a small, cyclically volatile open economy: Evidence from New Zealand

New Zealand's current account of the balance of payments has been persistently in deficit since the early 1970s and increased markedly during the late 1990s. Should this cause significant concern, for such a small, cyclically volatile open economy? Our results show that VAR1 and VAR2 forms of the traditional intertemporal consumption-smoothing model reflect very satisfactorily the volatile directions and turning points observed, that the data are not consistent with consumption-tilting to the present, and that New Zealand has had considerable success to date in consumption-smoothing around its average 5% current account deficit. Perhaps more unexpectedly, a Bergin–Sheffrin-type model of a small open economy with variable interest rates and exchange rates has not performed noticeably better.     

The impact of family-firm structure and board composition on corporate transparency: Evidence based on segment disclosures in Malaysia

The aim of this study is to contribute to the growing literature on the quality of accounting disclosures by family firms by investigating whether the alignment (entrenchment) effect leads to high (low) corporate transparency. Unlike previous studies, this study also examines the relationship between board composition and corporate transparency by distinguishing between the two types of nonexecutive directors, namely independent and affiliated directors. Using the enhanced segment disclosures by Malaysian firms in 2001/2002 as a proxy of corporate transparency, the results indicate that family firms are more inclined to disclose all the required items for the primary basis of segment reporting, consistent with Ali, Chen, and Radhakrishnan (2007) and Wang (2006). The result also indicates that firms with higher proportion of affiliated directors are more likely to make greater segment disclosures. However, no evidence is found to support the contention that independent directors and institutional investors promote corporate transparency, consistent with previous Malaysian studies.     

The political economy of residual state ownership in privatized firms: Evidence from emerging markets

We investigate the political determinants of residual state ownership for a unique database of 221 privatized firms operating in 27 emerging countries over the 1980 to 2001 period. After controlling for firm-level and other country-level characteristics, we find that the political institutions in place, namely, the political system and political constraints, are important determinants of residual state ownership in newly privatized firms. Unlike previous evidence that political ideology is an important determinant of privatization policies in developed countries, we find that right- or left-oriented governments do not behave differently in developing countries. These results confirm that privatization is politically constrained by dynamics that differ between countries.     

Attaching Workers through In-Kind Payments: Theory and Evidence from Russia

External shocks may cause a decline in the productivity of fixedcapital in certain regions of an economy. Exogenous obstaclesto migration make it hard for workers in those regions to reallocateto more prosperous regions. In addition, firms may devise "attachment"strategies to keep workers from moving out of a local labormarket. When workers are compensated in kind, they find it difficultto raise the cash needed for migration. This endogenous obstacleto migration has not yet been considered in the literature.The article shows that the feasibility of attachment dependson the inherited structure of local labor markets: attachmentcan exist in equilibrium only if the labor market is sufficientlyconcentrated. Attachment is beneficial for both employers andemployees but hurts the unemployed and the self-employed. Ananalysis of matched household-firm data from the Russian Federationcorroborates the theory.     

The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting

I study the evolution of SFAS 142, which uses unverifiable fair-value estimates to account for acquired goodwill. I find evidence consistent with the FASB issuing SFAS 142 in response to political pressure over its proposal to abolish pooling accounting. The result is interesting given this proposal was due in part to SEC concerns over pooling misuse. I also find evidence consistent with lobbying support for SFAS 142 increasing in firms’ discretion under the standard. Agency theory predicts such unverifiable discretion can be used opportunistically.     

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.     

Estimating financial distress with a dynamic model: Evidence from family owned enterprises in a small open economy

Employing earnings shortfall as a financial distress indicator, we formulate a dynamic nonlinear model, implementing Wooldridge's conditional maximum likelihood estimator and accounting for potentially endogenous covariates. Likewise, we not only achieve a significant improvement in consistency and classification accuracy over static approaches, but we also manage to understand better the evolution of the financial distress process. In our sample of Greek listed firms the higher the positive performance and the lower the leverage at the initial period the greater the chance that a company enters financial distress further down the road, possibly due to manager–owner overconfidence and debt-imposed discipline by company's creditors.     

The determinants of interest margins and their effect on bank diversification: Evidence from Asian banks

An endogenous switching regression model is employed for this study, categorizing the banks into regimes of high and low degrees of diversification, with our results indicating that net interest margins can be less sensitive to fluctuations in bank risk factors for functionally diversified banks as compared to more specialized banks. In turn, this implies that by diversifying their income sources, these banks can reduce the shocks to net interest margins arising from idiosyncratic risk. Our results show that prior findings can hold when the banks are located in a regime with a low degree of diversification.