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Article
Publication date: 1 February 2004

Olof Brunninge and Mattias Nordqvist

The purpose of this article is to investigate how ownership structure, especially family and/or venture‐capital involvement, as well as entrepreneurial activities, defined as…

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Abstract

The purpose of this article is to investigate how ownership structure, especially family and/or venture‐capital involvement, as well as entrepreneurial activities, defined as strategic change and renewal, help explain the involvement of independent members on boards of directors. The CEOs of 2,455 small and medium‐sized, private enterprises from practically all industries were contacted in a telephone survey, resulting in an exceptionally high response rate. The findings reveal that family firms are more reluctant to involve independent directors on their boards than non‐family firms, that presence of venture capitalists increases the frequency of independent board members and that ownership has an impact on board roles. The results do not support the hypothesised relationship that independent directors enhance entrepreneurial activities. One implication of our study is that the often‐argued‐for strategic contribution of outsiders to the boards in family firms may be overemphasised. Another implication is that family firms that choose to acquire additional capital should be aware that this could result in a change in the board composition and the loss of control of the business. However, new and external owners' inclusion on the board seems to be negotiable since there are also venture capitalists that do not insist on board representation.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 10 no. 1/2
Type: Research Article
ISSN: 1355-2554

Keywords

Article
Publication date: 11 September 2009

Liyu He, Sue Wright, Elaine Evans and Susan Crowe

The purpose of this paper is to determine what aspects of board independence, in terms of board structure and characteristics of non‐executive directors (NEDs), are associated…

1820

Abstract

Purpose

The purpose of this paper is to determine what aspects of board independence, in terms of board structure and characteristics of non‐executive directors (NEDs), are associated with effective monitoring of management, as evidenced through lower levels of earnings management.

Design/methodology/approach

This paper examines the effectiveness of board independence requirements under the 2003 Australian Stock Exchange (ASX) Principles of Good Corporate Governance and Best Practice Recommendations (POGCG) for a sample of 231 firms listed on the ASX in the financial year 2005. The associations of board composition, share ownership and compensation of NEDs with the level of earnings management are estimated. To explore the characteristics of NEDs that are important for effective monitoring, NEDs are separated into “grey” (affiliated) directors and independent directors and compensation is separated into variable and fixed components.

Findings

The results of the paper indicate a positive relation between earnings management and share ownership of NEDs, particularly that of grey directors. There is a negative relation between NED compensation and the level of earnings management, particularly the fixed compensation component for independent directors.

Practical implications

This paper is important to shareholders, academics and policy makers because it shows the type of remuneration and ownership levels for NEDs that are consistent with good corporate governance. NEDs are more effective monitors when independent directors are compensated more as a fixed amount that is not related to the firm's performance. The compensation of grey directors is not associated with the level of earnings management. On the other hand, NEDs are less effective monitors as share ownership by grey directors increases. The share ownership of independent directors is not associated with the level of earnings management. To ensure the independence of the board and enhance its ability and incentives to effectively monitor management, the paper recommends that remuneration of NEDs should be a fixed amount, and the share ownership of NEDs should be limited.

Originality/value

The findings provide guidance as to the meaning of board independence, in terms of the payments and returns that NEDs receive from a company. The results provide support for recommendation 2.1 in the ASX's POGCG that requires the majority of the board to be independent directors. The paper highlights the need for boards to be careful when choosing and rewarding NEDs.

Details

Accounting Research Journal, vol. 22 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Book part
Publication date: 9 December 2013

Ali C. Akyol and Lauren Cohen

To explore the importance of the board of director nomination process (that is, who nominates a given director for a position on the firm’s board) for the voting outcomes…

Abstract

Purpose

To explore the importance of the board of director nomination process (that is, who nominates a given director for a position on the firm’s board) for the voting outcomes, disciplining of management, and overall monitoring quality of the board of directors.

Design/methodology/approach

We exploit a recent regulation passed by the US Securities and Exchange Commission (SEC) requiring disclosure of the board nomination process. In particular, we focus on firms’ use of executive search firms versus allowing internal members (often simply the CEO) to nominate new directors to serve on the board of directors.

Findings

We show that companies that use search firms to find board members pay their CEOs significantly higher salaries and significantly higher total compensations. Further, companies with search firm-identified independent directors are significantly less likely to fire their CEOs following negative performance. In addition, companies with search firm-identified independent directors are significantly more likely to engage in mergers and acquisitions (M&A) and see abnormally low returns from this M&A activity. We instrument the endogenous choice of using an executive search through the varying geographic distance of companies to executive search firms. Using this instrumental variable framework, we show search firm-identified independent directors’ negative impact on firm performance, consistent with firm behavior and governance consequences we document.

Originality/value

Given the recent law passage, we are the first to directly analyze the nomination process, and show a surprisingly large predictive effect of seemingly arm’s-length nominations. This has clear implications for thinking carefully through how independence is defined in the director nomination process.

Details

Advances in Financial Economics
Type: Book
ISBN: 978-1-78350-120-5

Keywords

Book part
Publication date: 4 September 2015

Timothy G. Coville and Gary Kleinman

The manner in which publicly traded companies’ management teams handle their firm’s free cash flows (FCF) has been an issue for many decades, because it is difficult to determine…

Abstract

The manner in which publicly traded companies’ management teams handle their firm’s free cash flows (FCF) has been an issue for many decades, because it is difficult to determine whether these management teams work for their own benefit or for that of their shareholders. Recent financial scandals have heightened mistrust of management. This mistrust, in turn, may have increased the pressure to reduce the portion of FCF left under management’s control. Boards of directors control dividend payout decisions, thus determining the portion of FCF available to corporate management. This paper examines whether the 2002 legal response to corporate financial reporting scandals, which came in the form of many new initiatives and requirements imposed by the Sarbanes–Oxley Act of 2002 (SOX) on all publicly traded firms, was relevant to dividend payouts. This question is investigated by noting that the impact of these new requirements differed among firms. Some firms had already introduced the use of independent directors and fully independent committees prior to SOX making them compulsory in 2002. This paper examines whether these “pre-adopters” experienced less change in their dividend payout policies than those firms that were forced to change the composition of their board and committees.

This investigation examines the effect on dividend payouts for listed firms attributable to the SOX and concurrent changes in stock exchange regulations that compelled increased use of independent directors and fully independent committees. To study the impact of SOX and the associated, required, changes in the composition of boards of directors for many firms, the difference-in-differences methodology is employed to overcome the endogeneity concerns that have consistently challenged prior governance studies. This was accomplished by examining the effects on dividend payouts associated with the exogenously forced addition of independent directors to the boards of publicly listed firms. The results reveal that there is a significant positive relationship between firms that were compelled by law to change their boards and increases in average changes in dividend payouts and percentage changes in dividends paid, when compared to firms that had pre-adopted the Sarbanes–Oxley corporate board composition requirements. A further exploratory analysis showed that the same significant positive relationship is detected for increases in average changes in total dollars distributed, where stock repurchase dollars are combined with dividend payouts. These findings imply that these board composition changes led to decisions that increased dividend payouts in percentage terms, as well as dividend payouts and total dollars distributed in aggregate dollar amount terms.

Details

Sustainability and Governance
Type: Book
ISBN: 978-1-78441-654-6

Keywords

Article
Publication date: 2 August 2023

Anita Kerai, Riccardo Marzano, Lucia Piscitello and Chitra Singla

This paper investigates the role of the founder CEO and board independence in shaping the way in which Indian and Italian family firms (FFs) pursue international growth via two…

Abstract

Purpose

This paper investigates the role of the founder CEO and board independence in shaping the way in which Indian and Italian family firms (FFs) pursue international growth via two modes, that is exports and FDI. This article claims that country's context matters in determining the relationship between the presence of the founder CEO and FFs' extent of exports and extent of FDI. Further, this article examines the moderating role of board independence on the above-mentioned founder CEO–FF's international growth relationship.

Design/methodology/approach

Using a fixed-effect panel data method, this article tests the hypotheses on a sample of 1,275 Indian FF-year observations and 705 Italian FF-year observations over the period 2008–2015.

Findings

This article reveals that the presence of a founder CEO is positively associated with the extent of exports but negatively associated with the extent of FDI in Italian firms. However, in case of Indian firms, the presence of the founder CEO is negatively associated with the extent of exports as well as with the extent of FDI. This founder CEO's influence on the firm's international growth is mitigated by the presence of an independent board in Italian firms; however, this moderation is not significant in the case of Indian firms.

Research limitations/implications

It is important to capture heterogeneity within family firms and across institutional contexts while studying family firms' international growth. Further, it is important for international business scholars to theorize for different modes of international growth because challenges faced in expansion via exports are different from the challenges faced in expansion via FDI (foreign subsidiaries). Therefore, family firms leadership might prefer a certain mode of international growth.

Practical implications

The findings of the study imply that national culture and institutional context could play an important role in determining (a) Founder CEO's inclination towards FF's extent of exports and FDI as well as (b) the effectiveness of an independent board in mitigating founder CEO's influence on FF's international growth.

Originality/value

This work is one of the very few studies that examines the impact of FF's heterogeneity and country heterogeneity on two modes of international growth, namely exports and FDI, in the Indian and Italian contexts. Further, this work provides empirical evidence on the independent board's role in mitigating founder CEO's influence in decision making in the case of Italian firms. Extant literature expects an independent board to encourage FFs' international growth both via exports and FDI; this study shows that independent boards could reduce the founder CEO's inclination towards exports and mitigate founder CEO's influence on the decision making; however, this mitigation effect is highly context dependent.

Details

Cross Cultural & Strategic Management, vol. 30 no. 4
Type: Research Article
ISSN: 2059-5794

Keywords

Article
Publication date: 12 July 2022

Johana Sierra-Morán, Laura Cabeza-García and Nuria González-Álvarez

Although the literature on corporate governance and firm innovation finds that board independence is important, this paper proposes that the presence of independent directors…

Abstract

Purpose

Although the literature on corporate governance and firm innovation finds that board independence is important, this paper proposes that the presence of independent directors alone is not enough to explain their impact on firm innovation. This study analyses if diversity among independent directors may affect the relationship between board independence and firm innovation.

Design/methodology/approach

A panel data on a sample of 124 Spanish listed companies for the period 2008–2019 used to test the hypotheses.

Findings

Results suggest that independent directors have a negative effect on firm innovation, measured as number of patents, but when there are high levels of gender and nationality diversity among such directors, this negative effect may be mitigated.

Originality/value

Considering that firm innovation is a complex process associated with decision-making and that board independence itself may be not enough, this study goes a step further and delves deeper into the characteristics of independent directors. As far as is known, this paper is the first theoretical and empirical study that considers that independent director diversity as a moderating variable between board independence and firm innovation. Besides, this research contributes to the debate on the role of independent directors in firm innovation and the results may also serve as a guideline for policy makers and firms for structuring boards that are pro-innovation.

Details

European Journal of Innovation Management, vol. 27 no. 2
Type: Research Article
ISSN: 1460-1060

Keywords

Article
Publication date: 2 October 2017

Ramzi Benkraiem, Amal Hamrouni, Faten Lakhal and Nadia Toumi

This paper aims to investigate the joint effect of board independence and gender diversity on the effectiveness of boards in monitoring CEO compensation in a continental European…

4176

Abstract

Purpose

This paper aims to investigate the joint effect of board independence and gender diversity on the effectiveness of boards in monitoring CEO compensation in a continental European context, i.e. France.

Design/methodology/approach

Fixed-effect regressions are used to study the impact of board independence, gender diversity and their interaction, i.e. the proportion of female independent directors on the different components of CEO compensation (total, fixed and variable).

Findings

The authors observe that both the proportions of independent directors and women sitting on the boards positively influence the various components of CEO compensation. However, the interaction of these factors, i.e. the proportion of female independent directors, is negatively associated with CEO compensation. These results suggest that independent women directors improve board effectiveness in monitoring CEO compensation, especially its fixed component.

Originality/value

The results of this research help to elucidate the importance of women being appointed to boards as independent directors to properly monitor managerial pay. These results provide support to the approach of the French Cope-Zimmerman law of January 2011, which promotes female representation on boards as independent directors to enhance board decision-making. Thus, evidence presented and discussed in this paper should provide useful insights for academics, corporate managers and regulators.

Details

Corporate Governance: The International Journal of Business in Society, vol. 17 no. 5
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 15 March 2019

Thi Tuyet Mai Nguyen, Elaine Evans and Meiting Lu

The purpose of this paper is to examine the perceptions of independent directors in Vietnam about their roles and challenges when sitting on the boards of listed companies.

553

Abstract

Purpose

The purpose of this paper is to examine the perceptions of independent directors in Vietnam about their roles and challenges when sitting on the boards of listed companies.

Design/methodology/approach

The study uses mailed questionnaires to collect data. The authors sent surveys to 810 independent directors from 354 listed companies and received feedback from 170 respondents.

Findings

The authors examine several aspects of independent directors’ work on the board (such as the roles of and challenges for independent directors) as well as board environment (such as information provision or board interaction). Findings suggest that independent directors in Vietnam place more emphasis on their advisory role than their monitoring role. In addition, they also point out their challenges including information asymmetries and the influence of controlling shareholders. These challenges are significant and they prevent independent directors to properly execute their independent role on the board. These findings reflect the unique features of corporate governance in transition economies.

Originality/value

The authors contribute to the literature through providing an insightful view about the nature of the work performed by this type of director in a transition economy. The study is also one of the first studies to use a qualitative instrument to provide an explanation of how controlling shareholders influence independent directors on boards of directors.

Details

Asian Review of Accounting, vol. 27 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 22 July 2021

Erhan Kilincarslan

This study aims to investigate the impact of board independence on the cash dividend payments of family firms listed on the Borsa Istanbul (BIST) in balancing controlling…

1018

Abstract

Purpose

This study aims to investigate the impact of board independence on the cash dividend payments of family firms listed on the Borsa Istanbul (BIST) in balancing controlling families’ power to mitigate agency problems between family and minority shareholders in the post-2012 period. The authors focus on this period because Turkish authorities implemented mandatory regulations on the employment of independent directors on boards from fiscal year 2012.

Design/methodology/approach

The research model uses a panel dataset of 153 BIST-listed family firms over the period 2012–2017, employs alternative dependent variables and regression techniques and is applied to various sub-groups to improve robustness.

Findings

The empirical results show a strong positive effect of board independence on dividend decisions. The authors further detect that family directorship exhibits a negative effect, whereas both board size and audit committees have positive influences but chief executive officer (CEO)/duality has had no significant impact on the dividend policies of Turkish family firms since the new compulsory legal requirements in the Turkish market.

Research limitations/implications

The findings suggest that independent directorship and dividend policy are complementary governance mechanisms to reduce agency conflicts between families and minority shareholders in Turkey, which is a civil law-based emerging country characterized by high family ownership concentration.

Practical implications

The authors present evidence that Turkish family firms’ corporate boards have evolved, to some extent, from being managerial rubber stamps to more independent boards that raise opposing voices in family decision-making. However, independent directors’ preference for dividend-induced capital market monitoring implies that their direct monitoring is less effective than it is supposed to be. This suggests a need to revise the Turkish Corporate Governance Principles to enhance independent directors’ monitoring and supervisory power.

Originality/value

This is thought to be the first study to provide insights on how board independence influences dividend policy in controlling agency problems in Turkish family firms since Turkish authorities introduced compulsory rules on the employment of independent directors on boards.

Details

International Journal of Accounting & Information Management, vol. 29 no. 4
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 7 August 2019

Zahra AL Nasser

The purpose of this paper is to empirically examine the effect of royal family members on firm performance of publicly listed companies in Saudi Arabia.

Abstract

Purpose

The purpose of this paper is to empirically examine the effect of royal family members on firm performance of publicly listed companies in Saudi Arabia.

Design/methodology/approach

Using 491 firm-year observations of non-financial publicly listed firms in Saudi Arabia’s stock market between 2009 and 2013, the study employs, besides others, the advanced econometric technique GMM-system estimator. This allows the dynamic nature and control of the endogeneity problem to be accounted for in corporate governance and firm performance.

Findings

The main result is that the attendance of royal family members at board meetings negatively influences firm performance but does not have an influence on firm value. The results also show that firms with many independent royal family members on the board of directors have better firm performance and firm value. In addition, firms with a high number of royal family members presenting on the board have better firm performance.

Research limitations/implications

This study offers guidance to assist the further investigation of the SA Royal Family’s BoD membership either in SA or in other monarchy countries. It is interesting to compare these results in order to further understand the different effects that the Royal Family’s BoD membership have in such countries. This study’s results suggest that independent members of SA’s Royal Family on the BoD have some influence on firm performance in both the short and long term. Thus, policymakers should encourage the members of SA’s Royal Family to become more involved in firms’ BoDs.

Practical implications

This study offers guidance for further investigation of royal family members in the region or in other monarchy countries. It will be interesting to compare these results. The study suggests that royal family members on the board have a partial influence on firm performance, especially the independent ones. Thus, the policymakers should encourage more involvement of independent royal family members on the board.

Social implications

Foreign and minority investors, who invest in SA’s publicly listed firms, should note that when independent members of SA’s Royal Family are on the BoD their investment will benefit from the reduced risks and uncertainty.

Originality/value

To the best of the author’s knowledge, this is the first study undertaken to investigate empirically the influence a royal family’s presence on the board of directors has on firm performance. This study is based on both theories, namely the agency theory and resource dependence theory.

Details

Journal of Accounting in Emerging Economies, vol. 10 no. 3
Type: Research Article
ISSN: 2042-1168

Keywords

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