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Article
Publication date: 16 August 2021

Srikanth Potharla and Balachandram Amirishetty

This study aims to examine the significance of the non-linear relationship of board size and board independence on the financial performance of listed non-financial firms in India.

Abstract

Purpose

This study aims to examine the significance of the non-linear relationship of board size and board independence on the financial performance of listed non-financial firms in India.

Design/methodology/approach

The study draws the sample of the listed non-financial firm in the Indian market from the year 2011–2018 and applied panel least squares regression with and without industry fixed effects on the model with quadratic equation. Quantile regression is also used to test the robustness of the results. The financial performance is measured through one accounting measure (i.e. return on assets [ROA]) and one market-based measure (i.e. Tobin’s Q). The empirical model also controls firm-specific variables which are expected to have an impact on financial performance.

Findings

The study found that the relationship of board size and board independence with the financial performance of a firm is in a non-linear inverted U-shape. The results are qualitatively similar for both ROA and Tobin’s Q after controlling industry fixed effects.

Originality/value

This is the first study in India which tests the non-linear relationship of board size and board independence with the financial performance of the firm. The study contributes to the limited literature on the implications of board characteristics on the performance of the firms in India.

Details

Journal of Indian Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4195

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Article
Publication date: 1 July 2019

Yuan George Shan

The extant literature reports mixed and inconclusive findings concerning the relationship between corporate governance mechanisms and firm performance. To provide…

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Abstract

Purpose

The extant literature reports mixed and inconclusive findings concerning the relationship between corporate governance mechanisms and firm performance. To provide incremental insight, this paper aims to investigate whether the bi-directional relationships among managerial ownership, board independence and firm performance are determined.

Design/methodology/approach

This paper uses a data set consisting of 9,302 firm-year observations of Australian listed companies during 2005-2015 and a three-stage least squares simultaneous equation model to test the bi-directional relationships.

Findings

The results indicate that both managerial ownership and board independence inversely affect firm performance and vice versa. In addition, board independence is negatively correlated with managerial ownership and vice versa.

Practical implications

The convergence-of-interests hypothesis can be achieved by manipulating managerial ownership through making contingent payments. Board independence, as a voluntary regime in Australia, can provide additional flexibility to corporate decision makers.

Originality/value

This study provides additional evidence by using the convergence-of-interests hypothesis vis-à-vis the entrenchment hypothesis to examine the relationship between managerial ownership and firm performance, and tests the association of board independence and firm performance using the explanation of agency theory vis-à-vis stewardship theory.

Details

Accounting Research Journal, vol. 32 no. 2
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 6 November 2018

Hanh Thi Song Pham and Hien Thi Tran

This paper aims to investigate the effects of board model and board independence on corporate social responsibility (CSR) disclosure of multinational corporations (MNCs).

Abstract

Purpose

This paper aims to investigate the effects of board model and board independence on corporate social responsibility (CSR) disclosure of multinational corporations (MNCs).

Design/methodology/approach

The authors developed an empirical model in which CSR disclosure is the dependent variable and board model (two-tier vs one-tier), board independence (a proportion of independent directors on a board) and the interaction variable of board model and board independence together with several variables conventionally used as control variables are independent variables. The authors collated the panel dataset of 244 Fortune World’s Most Admired (FWMA) corporations from 2005 to 2011 of which 117 MNCs use the one-tier board model, and 127 MNCs use the two-tier board model from 20 countries. They used the random-effect regression method to estimate the empirical models with the data they collated and also ran regressions on the alternative models for robustness check.

Findings

The authors found a significantly positive effect of a board model on CSR disclosure by MNCs. Two-tier MNCs tend to reveal more CSR information than one-tier MNCs. The results also confirm the significant moderating impact of board model on the effect of board independence on CSR disclosure. The effect of board independence on CSR disclosure in the two-tier board MNCs tends to be higher than that in the one-tier board MNCs. The results do not support the effect of board independence on CSR disclosure in general for all types of firms (one-tier and two-tier board). The impact of board independence on CSR disclosure is only significant in two-tier board MNCs and insignificant in one-tier board MNCs.

Practical implications

The authors advise the MNCs who wish to improve CSR reporting and transparency to consider the usage of two-tier board model and use a higher number of outside directors on board. They note that once a firm uses one-tier model, number of IDs on a board does not matter to the level of CSR disclosure. They advise regulators to enforce an application of two-tier board model to improve CSR reporting and transparency in MNCs. The authors also recommend regulators to continue mandating publicly traded companies to include more external members on their boards, especially for the two-tier board MNCs.

Originality/value

This paper is the first that investigates the role of board model on CSR disclosure of MNCs.

Details

Multinational Business Review, vol. 27 no. 1
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 23 July 2021

Jiunn-Shyan Khong, Chee-Wooi Hooy and Chun-Teck Lye

This study investigates the effect of board independence on private information-based trading (PIBT) events. This study also examines the interaction effects of firm's…

Abstract

Purpose

This study investigates the effect of board independence on private information-based trading (PIBT) events. This study also examines the interaction effects of firm's disclosure quality and the statutory and demographic roles of independent directors and board diversity attributes, respectively, on the relationship between board independence and PIBT.

Design/methodology/approach

This study uses panel data of 811 non-financial public listed companies in Bursa Malaysia for the sample period 2009–2017. The dynamic general method of moments (DGMM) is used for the dynamic panel data estimation and to address the potential endogeneity problem.

Findings

The results show that board independence has a negative effect on PIBT and the effect could be strengthened by firm's disclosure quality, women independent directors and board gender diversity, but attenuated by CEO duality. The overall result suggests that apart from independent audit committee, the statutory and demographic attributes of independent directors and board diversity, and firm's disclosure quality are complementary to board independence in preventing persistent PIBT.

Originality/value

This study augments the existing corporate governance and information-based trading literature from the perspectives of firm's disclosure quality, and the statutory and demographic roles of independent directors and board diversity attributes, by examining their effects on the relationship between board independence and PIBT.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 May 2021

Qian Long Kweh, Wen-Min Lu, Irene Wei Kiong Ting and Hanh Thi My Le

First, this study assesses firms’ efficiency of transforming intellectual capital (IC) components into firm performance. Second, this study examines (1) cubic S-curve…

Abstract

Purpose

First, this study assesses firms’ efficiency of transforming intellectual capital (IC) components into firm performance. Second, this study examines (1) cubic S-curve relationship between board independence and IC efficiency and (2) how firm size moderates the cubic S-curve relationship.

Design/methodology/approach

This study employs a stochastic nonparametric envelopment of data (StoNED) framework to estimate IC efficiency, which is derived from the estimation process of transforming structural, relational and human capitals into accounting- and market-based performance indicators. This study conducts regression analyses on 1,104 firm-year observations of Taiwanese semiconductor firms over the period of 2011–2018.

Findings

StoNED results suggest that sample firms' IC efficiency can be relatively improved by approximately 80%. Regression results indicate that a cubic S-curve relationship between board independence and IC efficiency exists, and firm size moderates the nonlinear effects.

Practical implications

Overall, this study highlights the importance of examining the nonlinear effect of board independence on IC efficiency from the perspective of agency theory, and the moderating effect from firm size, which may suggest availability of resources from the resource-based view of the firm.

Originality/value

This study contributes to the literature through the innovative application of an efficiency-based tool for evaluating IC efficiency. The cubic S-curve relationship between board independence and IC efficiency also points to the policy concerning the appropriate number of independent directors on board.

Details

Journal of Intellectual Capital, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1469-1930

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Article
Publication date: 5 February 2018

Michelle Li and Helen Roberts

This paper aims to examine the relationship between board independence and firm performance for publicly listed New Zealand (NZ) firms over the period 2004-2016.

Abstract

Purpose

This paper aims to examine the relationship between board independence and firm performance for publicly listed New Zealand (NZ) firms over the period 2004-2016.

Design/methodology/approach

To address endogeneity concerns, the relationship between firm performance and board independence is modelled using three different approaches: firm fixed-effect estimation, difference-in-difference estimation and two-stage least squares estimation, while controlling for firm and governance characteristics.

Findings

The main finding is that the mandated board independence introduced by the Best Practice Code does not improve operating or market performance for listed NZ firms.

Research limitations/implications

The fact that NZ firms choose greater board independence than required is puzzling. Research examining director characteristics and connectedness, not captured by the NZX Code, may be a fruitful area for future research when disclosure allows.

Practical implications

Regulators may need to review reasons for mandating changes in factors affecting firm governance before implementing further regulations concerning board structure.

Social implications

The findings cast doubt on the benefit of mandated board independence for NZ firms. The results imply that “good” governance practices proposed by regulators are not universal.

Originality/value

This paper tests the impact of mandated board independence following the adoption of the Best Practice Code in 2004 using methodologies that account for endogeneity using 13 years of data.

Details

Pacific Accounting Review, vol. 30 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 31 December 2015

Sharon Kay Lee, William Bosworth and Franklin Kudo

Recently all major stock exchanges issued a requirement that listed companies have 100 percent independence on audit committees of the board of directors but now the focus…

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2106

Abstract

Purpose

Recently all major stock exchanges issued a requirement that listed companies have 100 percent independence on audit committees of the board of directors but now the focus has turned to compensation committees. Does 100 percent independence on compensation committees make a difference in firm performance? The paper aims to discuss these issues.

Design/methodology/approach

Only 1 percent of the S & P 1,500 firms are not in compliance with the new 100 percent independence requirement for compensation committees. This presents an opportunity to examine characteristics of these firms and if this noncompliance may harm firm performance. Industry-adjusted ROA and Tobin’s Q measures are collected as well as firm size, debt ratios, and the presence of a classified board.

Findings

Findings are as follows: S & P 500 firms with lower levels of debt, have classified board, but do not perform significantly worse than firms in compliance in the same industry; mid-cap firms with debt levels similar to complying firms, have classified boards, and perform significantly worse, and lastly, small-cap firms with lower levels of debt, have classified boards, and perform significantly worse.

Research limitations/implications

Results imply that non-complying mid-cap and small-cap firms may be protecting under-performing management through maintaining classified boards, low levels of debt to avoid scrutiny of the debt markets, and less objectivity (i.e. overall and committee independence) on boards.

Originality/value

Existing corporate governance literature provides evidence that overall board independence may promote shareholder wealth maximization. The latest focus regarding independence has recently been on compensation committees. Should independence on compensation committees matter to shareholders? It is appears that noncompliance should matter in the case of small- and mid-cap firms.

Details

Managerial Finance, vol. 42 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 20 November 2017

Allam Mohammed Mousa Hamdan and Muneer Mohamed Saeed Al Mubarak

The purpose of this paper is to explore the effect of board independence on firm’s performance from the Stewardship theory perspective.

Abstract

Purpose

The purpose of this paper is to explore the effect of board independence on firm’s performance from the Stewardship theory perspective.

Design/methodology/approach

The study uses panel data of 162 firms listed in Bahrain Bourse and Saudi Stock Exchange during the period of 2013-2015. It also uses several econometric techniques to confirm the robustness of the results, such as firm fixed-effect approach and two-stage least squares (2SLS) in order to overcome the endogeneity which exists in such relations.

Findings

The study found an inverse effect of board independence on firm performance which was measured using two accounting-based measures: return of assets and return on equity. Based on these results, it was found that internal directors are more effective in enhancing performance of the firm than independent directors as information asymmetry problem and lack of firm-specific experience hinders the ability of independent directors of taking proper decisions that enhance firm's performance.

Originality/value

The study contributes to the ongoing debate about the relation between board independence and firm's performance in emerging markets, focusing on Saudi and Bahraini markets which have recently sought to form a system of laws that aims at protecting investors. The study indicates the importance of such laws rather than traditional governance measurements in enhancing performance.

Details

Journal of Economic and Administrative Sciences, vol. 33 no. 2
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 9 August 2021

Sandra Alves

This study draws on agency, theory to evaluate the relationship between chief executive officer (CEO) duality and earnings quality, proxied by discretionary accruals…

Abstract

Purpose

This study draws on agency, theory to evaluate the relationship between chief executive officer (CEO) duality and earnings quality, proxied by discretionary accruals. Additionally, this study aims to examine whether board independence moderates the relationship between CEO duality and earnings quality.

Design/methodology/approach

This study uses a fixed-effects regression model to examine the effect of CEO duality on earnings quality and to test whether board independence moderates that relationship for a sample of non-financial listed Portuguese firms-year from 2002 to 2016.

Findings

Consistent with agency theory, this study suggests that CEO duality decreases earnings quality. Further, the results also suggest that the earnings quality reduction associated with CEO duality is attenuated when the board of directors has a higher proportion of independent directors.

Practical implications

The findings based on this study provide useful information to investors and regulators in evaluating the impact of CEO duality on earnings quality and the effect of board independence on the role of CEO duality, especially under concentrated ownership.

Originality/value

To the knowledge, this study is the first to investigate the role of board independence on the association between CEO duality and earnings quality. In addition, this paper is the first empirical study to investigate the direct and indirect effect of CEO duality on earnings quality in Portugal.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 17 February 2021

Afzalur Rashid

This study aims to examine the association between board independence and corporate social responsibility (CSR) reporting and the moderating role of stakeholder power on…

Abstract

Purpose

This study aims to examine the association between board independence and corporate social responsibility (CSR) reporting and the moderating role of stakeholder power on the association between board independence and CSR reporting.

Design/methodology/approach

Using a sample of 707 Bangladeshi firm-year observations, this study uses a content analysis technique to develop a 24-item of CSR reporting index. This study uses the ordinary least squares regression method to examine the relationship between board independence and CSR reporting.

Findings

The study finds that board independence does not influence CSR activities and relevant reporting in general. However, the non-influence of board independence and CSR reporting is offset by stakeholder power. Insider ownership, firm age, firm size, growth opportunities and market capitalisation have a positive influence on such reporting.

Practical implications

While this study suggests that stakeholders’ influence is an important factor in determining the firms’ incentives to disclose CSR information, this finding creates a new debate on the efficacy of independent directors and whether they are good monitors and are able to fulfil all the stakeholders’ expectations.

Originality/value

This study makes an important contribution to the literature on CSR practices by documenting that firms having powerful stakeholders induce the board and management to make more CSR reporting practices in the context of emerging economies.

Details

Management Research Review, vol. 44 no. 8
Type: Research Article
ISSN: 2040-8269

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