Family ties,board compensation and firm performance

This study examines the effect of corporate boards with family ties on board compensation and firm performance. Family firms dominate the vast majority of enterprise forms around the world. Despite possible agency problems between large and small shareholders, family boards may contribute specific knowledge and competitive advantage to the firm. This paper shows that the excess board compensation of firms with a non-family CEO is positively related to the percentage of board members with family ties, but the presence of family boards cannot justify the outcome of firm performance, suggesting a negative entrenchment of firms with a non-family CEO. By contrast, the excess board compensation of firms with a family CEO is found to be unrelated to the percentage of board members with family ties, and the presence of family boards is positively associated with firm performance, suggesting the convergence-of-interests of firms with a family CEO.     

Board and Monitoring Committee Independence

This study focuses on the composition of boards of directors and their monitoring committees (audit and compensation) for large Australian companies. For firms whose boards use a committee structure, much of the monitoring responsibility of the board is expected to rest with the independent committee members. We document a positive association between the proportion of independent directors on the full board and its monitoring committees, and a greater proportion of independent directors on both audit and compensation committees than the full board. Our hypotheses tests involve an examination of the impact of other mechanisms used to control agency conflicts on full board and committee independence, and the association between this independence and firm value. We find that full board independence is associated with low management ownership and an absence of substantial shareholders. Audit committee independence is associated with reduced monitoring by debtholders when leverage is low. While we predict a positive relationship between board and monitoring committee independence and firm value, our results do not support this conjecture.     

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.     

Subordinate board structures

The board of directors is a flat governance structure where each director has an equal vote in determining the collective actions taken by the group. Yet, some boards choose to delegate authority for specific tasks to numerous committees, while others choose to create relatively few subcommittees of the board. We investigate the determinants of subordinate board structures, exploring both their benefits and costs. Using a sample of the S&P 1500 we find that subordinate board structures are positively related to board size and the proportion of outside directors, even after controlling firm characteristics such as complexity and ownership structure. Further tests indicate that these board structures can offset the negative associations that board size and the proportion of outsiders can have with firm performance. Yet, in firms with relatively small or insider oriented boards, where co-ordination problems among directors or social loafing may be less pronounced, we find that subordinate board structures are negatively related to firm performance. Categorizing committees as either monitoring or advisory, we find that both types of committees appear related to firm performance. Taken as whole, these results are consistent with the idea that subordinate board structures can be a costly remedy to alleviate problems that arise with larger, more outsider dominated boards.     

The role of board independence in mitigating agency problem II in Australian family firms

We investigate the impact of board independence on earnings management on a sample of family controlled firms listed on the Australian Securities Exchange (ASX). Using panel data over the period 2000–2004, we find evidence of earnings management among family controlled firms in Australia, an environment of high investor protection and private benefits of control. Findings show that a higher proportion of independent directors on boards is effective in reducing earnings management, thereby mitigating agency problems associated with entrenchment and expropriation in family firms. We also find that managers of family firms are less aggressive in managing earnings via discretionary long-term accruals compared to non-family firms.     

The costs of intense board monitoring

We study the effects of the intensity of board monitoring on directors' effectiveness in performing their monitoring and advising duties. We find that monitoring quality improves when a majority of independent directors serve on at least two of the three principal monitoring committees. These firms exhibit greater sensitivity of CEO turnover to firm performance, lower excess executive compensation, and reduced earnings management. The improvement in monitoring quality comes at the significant cost of weaker strategic advising and greater managerial myopia. Firms with boards that monitor intensely exhibit worse acquisition performance and diminished corporate innovation. Firm value results suggest that the negative advising effects outweigh the benefits of improved monitoring, especially when acquisitions or corporate innovation are significant value drivers or the firm's operations are complex.     

Non-GAAP earnings and board independence

We examine the association between board independence and the characteristics of non-GAAP earnings. Our results suggest that companies with less independent boards are more likely to opportunistically exclude recurring items from non-GAAP earnings. Specifically, we find that exclusions from non-GAAP earnings have a greater association with future GAAP earnings and operating earnings when boards contain proportionally fewer independent directors. Consistent with the association between board independence and the permanence of non-GAAP exclusions reflecting opportunism rather than the economics of the firm, we find that the association declines following Regulation G and that managers appear to use exclusions to meet earnings targets prior to selling their shares more often in firms with fewer independent board members. Overall, our results suggest that board independence is positively associated with the quality of non-GAAP earnings.     

Do corporate boards matter during the current financial crisis?

This study examines the impact of corporate boards on firm performance during the current financial crisis. Using buy-and-hold abnormal returns over the crisis to measure firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we redefine independent directors as outside directors who are less connected with current CEOs, a measure we call strong independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. We find that the positive impact of outside financial experts on firm performance is more significant than that of strong independence. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards.     

Women in the boardroom and their impact on governance and performance

We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.     

Audit committee financial expertise,corporate governance,and the voluntary switch from auditor-provided to non-auditor-provided tax services

A prime objective of the SOX is to safeguard auditor independence. We investigate the relation between audit committee quality, corporate governance, and audit committees' decision to switch from permissible auditor-provided tax services. We find that firms with more independent boards, audit committees with greater accounting financial expertise, higher stock ownership by directors and institutions, that separate the CEO and Chairman of the board positions, and with higher tax to audit fee ratios are more likely to switch to a non-auditor provider. Further, we document that firms are more likely to switch prior to issuing equity. We find no evidence that broad financial expertise on audit committees is related to the switch decision, suggesting that the SEC's initial narrow definition of expertise is more consistent with the objective of the SOX. Overall, our results suggest that accounting financial expertise and strong corporate governance contribute to enhanced audit committee monitoring of auditor independence.     

Social Concentration on Boards,Corporate Information Environment and Cost of Capital

Prior evidence on the relationship between demographic diversity in corporate boards and firm performance is mixed. Some studies have found that the relationship between board attributes and firm performance is driven by a firm's information environment. This study examines whether corporate transparency also impacts the relationship between gender and ethnic diversity of directors and firm performance. To test this hypothesis, I use a Herfindahl Index based on directors’ gender and ethnicity to measure board diversity, and an opacity index based on analyst following, analyst forecast error, bid‐ask spread, and share turnover to measure corporate transparency. I find that the cost of capital is positively associated with social concentration on corporate boards and that this premium is larger for highly opaque firms. In further analysis, I find that the interaction of corporate information environment and social concentration on boards is more important for operationally complex firms. Compared with simple firms, operationally complex firms pay a greater premium on their capital if they have a socially concentrated board and an opaque information environment.     

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.     

Association between independent non-executive directors, family control and financial disclosures in Hong Kong

Our study examines whether comprehensive financial disclosures, used as a proxy for corporate board’s responsiveness, are positively associated with the proportion of independent non-executive directors (INDs) on corporate boards, and whether family control of the firm has an impact on this association. The findings suggest that the ratio of INDs to the total number of directors on corporate boards is positively associated with the comprehensiveness of financial disclosures, and this association appears to be weaker for family controlled firms compared to non-family controlled firms.     

The effect of independent directors’ characteristics on firm performance: Tenure and multiple directorships

In this paper, we analyze how the tenure and the number of directorships of independent directors may influence the relationship between board independence and firm performance. Our sample is composed of US listed firms for the period 2008–2012. Several robustness checks and sensitivity analyses are performed and we confirm that the board’s independence positively influences the firm’s performance. Nevertheless, this relationship exists only under certain values of directors’ tenure and external directorships. Our findings show that these variables determine the effectiveness of independent directors. Therefore, this paper highlights the need for a more specific approach, based on the personal characteristics of independent directors, in order to study their influence on corporate decisions, strategy and outcomes. Furthermore, our evidence has direct implications for companies in the selection of board members.     

The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms

This study examines the effects of board characteristics and sustainable compensation policy on carbon reduction initiatives and greenhouse gas (GHG) emissions of a firm. We use firm fixed effect model to analyse data from 256 non-financial UK firms covering a period of 13 years (2002–2014). Our estimation results suggest that board independence and board gender diversity have positive associations with carbon reduction initiatives. In addition, environment-social-governance based compensation policy is found to be positively associated with carbon reduction initiatives. However, we do not find any relationship between corporate governance variables and GHG emissions of a firm. Overall, our evidence suggests that corporate boards and executive management tend to focus on a firm's process-oriented carbon performance, without improving actual carbon performance in the form of reduced GHG emissions. The findings have important implications for practitioners and policymakers with respect to the effectiveness of internal corporate governance mechanisms in addressing climate change risks, and possible linkage between corporate governance reform and carbon related policies.     

Board meetings,committee structure,and firm value

In this study, we examine the determinants of board monitoring activity and its impact on firm value for a broad panel of firms over a six-year period from 1999 to 2005. During this period, Congress and the exchanges promulgated regulations that increased pressure upon firms for more independent and active boards. Economists have debated whether board activity and externally imposed regulations benefit or harm firms. We develop and examine several proxies for board monitoring and examine the relationship between board monitoring activity, firm characteristics, and firm value in a structural equation framework. One set of our proxies is based on the number of annual board and Audit Committee meetings. We show that prior performance, firm characteristics and governance characteristics are important determinants of board activity. We also show that the board monitoring is driven by corporate events, such as an acquisition or a restatement of financial statements. We find that board activity has a positive impact on firm value. Our results also indicate that the external pressure has had a salutary effect and recent regulations have led to some increase in firm value. A second set of proxies is based on the shift to a fully independent Audit, Compensation and Nominating Committees. We find that firms increased the independence of these Board committees following the enactment of the 2002 Sarbanes-Oxley Act.     

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.     

Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments

We examine the number of external appointments held by corporate directors. Directors who serve larger firms and sit on larger boards are more likely to attract directorships. Consistent with Fama and Jensen (1983), we find that firm performance has a positive effect on the number of appointments held by a director. We find no evidence that multiple directors shirk their responsibilities to serve on board committees. We do not find that multiple directors are associated with a greater likelihood of securities fraud litigation. We conclude that the evidence does not support calls for limits on directorships held by an individual.     

Does mandatory gender balance work? Changing organizational form to avoid board upheaval

Norway is the first, and so far the only, country to mandate a minimum fraction of female and male directors on corporate boards. We find that after a new gender balance law surprisingly stipulated that the firm must be liquidated unless at least 40% of its directors are of each gender, half the firms exit to an organizational form not exposed to the law. This response suggests that forced gender balance is costly. The costs are also firm-specific, because exit is more common when the firm is non-listed, successful, small, young, has powerful owners, no dominating family owner, and few female directors. These characteristics reflect high costs of involuntary board restructuring and low costs of abandoning the exposed organizational form. Correspondingly, certain unexposed firms hesitate to become exposed. Overall, we find that mandatory gender balance may produce firms with inefficient organizational forms or inefficient boards.     

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.