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Book part
Publication date: 2 February 2015

Frank Mullins

The funding of defined-benefit plans has garnered the attention of academicians, practitioners, and policymakers. Drawing upon agency and organizational control theories…

Abstract

The funding of defined-benefit plans has garnered the attention of academicians, practitioners, and policymakers. Drawing upon agency and organizational control theories, this study investigates the implications of board independence on changes in defined-benefit funding. Using a panel dataset of S&P 500 companies sponsoring defined-benefit plans, the author finds that corporate boards matter. Specifically, CEO duality and outside director representation are associated with year-to-year decreases in defined-benefit funding. Conversely, outside director ownership is related to year-to-year increases in defined-benefit funding. Furthermore, outside director ownership moderated the relationship between outside director representation and defined-benefit funding such that outside director representation is associated with year-to-year increases in defined-benefit plan funding when the percentage of outside director ownership is high.

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Advances in Industrial and Labor Relations
Type: Book
ISBN: 978-1-78441-380-4

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Article
Publication date: 1 July 2005

Duncan Orr, David Emanuel and Norman Wong

This study examines the relationship between board composition and firm value, and the extent to which this relationship may be affected by a company’s investment…

Abstract

This study examines the relationship between board composition and firm value, and the extent to which this relationship may be affected by a company’s investment opportunity set. There is little research that examines this issue, particularly for the New Zealand market. Of the research that exists, and generally for the research that examines how board composition affects firm performance, the findings have been mixed. Using a randomly chosen sample, which improves the external validity of results from prior studies, we find that board composition of high growth option firms is positively related to firm value, and this relationship is maintained when more refined measures that proxy the characteristics of outside directors (such as tenure of outside directors, the level of outside director equity ownership, the number of other board positions held by outside directors, and the total proportion of non‐executive directors, including grey directors) are recognised.

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Pacific Accounting Review, vol. 17 no. 2
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 24 August 2012

Shin‐Rong Shiah‐Hou and Chin‐Wei Cheng

The purpose of this paper is to explore how outside directors' experience and their compensation affect firm performance through the quality of their monitoring and…

Abstract

Purpose

The purpose of this paper is to explore how outside directors' experience and their compensation affect firm performance through the quality of their monitoring and advising, when traditional board structure devices do not seem to work well.

Design/methodology/approach

First, the authors use a two‐way fixed effects (FE) regression model to explore the effects of outside director experience and compensation on firm performance. Second, in order to address the potential endogeneity problem of outside director compensation, the authors adopt two‐stage least squares regression (2SLS).

Findings

Controlling for other potentially influential variables, it is found that outside director experience and outside director compensation have an economically positive impact on a firm's accounting and market performance. Even when taking into account the endogeneity problem of outside director compensation, outside director compensation and experience still have positive effects on firm performance, consistent with the authors' predictions.

Practical implications

It is inferred that regulators are able to ask publicly owned firms to provide outside director's experience and compensation in detail. In addition, future research should investigate the social relationships between outside directors, which also affect the functions of monitoring and advising.

Originality/value

First, this paper contributes to this area of the extant literature by simultaneously considering the direct impacts arising from the outside director's experience and compensation. Second, the paper highlights the importance of considering multiple dimensions of director's experience in assessing its effects on firm performance.

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Managerial Finance, vol. 38 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 17 May 2011

Haidan Li and Yiming Qian

The purpose of this paper is to examine whether outside CEO directors sympathize with the company CEO due to their similar positions and prestige, and make decisions in…

Abstract

Purpose

The purpose of this paper is to examine whether outside CEO directors sympathize with the company CEO due to their similar positions and prestige, and make decisions in favor of the company CEO. Specifically, the authors investigate how outside CEO directors serving on the compensation committee influence CEO compensation.

Design/methodology/approach

The authors investigate how outside CEO directors on the compensation committee impact the level and pay‐for‐performance sensitivity of CEO compensation. In addition, the relation between excess CEO compensation (attributable to outside CEO directors) and future firm‐operating performance is examined.

Findings

It is found that outside CEO directors on the compensation committee are associated with higher CEO compensation. However, excess CEO compensation attributable to outside CEO directors leads to poor future firm‐operating performance. Outside CEO directors are associated with higher CEO pay‐for‐performance sensitivity when the company experiences positive stock returns, but do not impact pay‐for‐performance sensitivity when firm performance is poor. Finally, when the company CEO has more influence on the board, outside CEO directors are more likely to serve on the compensation committee.

Originality/value

The paper is among the first to show that having outside CEO directors on the compensation committee might create agency problems and is costly to shareholders. The findings of the authors' study are relevant to current efforts of regulators and private sectors to enhance oversight of executive compensation.

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Review of Accounting and Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 4 March 2019

Yoonsung Nam, Tae-Joong Kim and Wonyong Choi

The purpose of this paper is to investigate the moderating effect of international trade on outside director system in Korean firms. The authors expected that Korean firms…

Abstract

Purpose

The purpose of this paper is to investigate the moderating effect of international trade on outside director system in Korean firms. The authors expected that Korean firms highly depending on international trade would mitigate the resource provision function of outside director system in order to reduce information asymmetry among global business partners. In addition, the authors tried to find out the functions of outside director system: the control function based on agency theory and resource provision function based on resource dependence theory.

Design/methodology/approach

The authors tested the hypotheses by Poisson regression with 2011 and 2002 Korean-listed manufacturing firms. The dependent variable is the number of excessively appointed outside directors and independent variable is CEO type: family CEO or professional CEO. The moderating variable is the dependency on international trade measured by export proportion out of total sales.

Findings

The authors found that not control but resource provision function was a main role of outside director system in Korean firms. The authors also found negative moderating effect of dependency on international trade, which means that firms highly depending on global market tended to consider outside director system as control function, namely “global standard.”

Originality/value

This paper is the leading study that tries to analyze empirically the relationship between international trade and the function of governance mechanism; outside director system in Korean firms. It also confirms that Korean firms adopted outside director system on the basis of the resource dependence theory.

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Article
Publication date: 2 March 2012

Hyang Mi Choi, Wonsik Sul and Sang Kee Min

This paper seeks to explore such questions as: “What are the impacts of foreign investors and what are the channels through which foreign investors contribute to or…

Abstract

Purpose

This paper seeks to explore such questions as: “What are the impacts of foreign investors and what are the channels through which foreign investors contribute to or detracts from firm value in Korea?” It aims to discuss how foreign investors and foreign outside directors interact to enhance firm value.

Design/methodology/approach

Using longitudinal data from the KOSPI200 index in Korea during 2004‐2007, the study examined the direct and interaction effect of foreign blockholders and foreign board members. To address the representativeness of foreign investors, the authors verified the mandates of foreign board members though telephone interviews.

Findings

Foreign block shareholders and foreign outside directors respectively provide expertise and independent monitoring over management. Foreign blockholders' management control via board membership is likely to mitigate leverage of value enhancement when foreign outside directors represent private interests of foreign blockholders. The moderating effect is also supported since foreign ownership concentration has an inverted U‐shaped relationship with value enhancement. The paper confirms that board independence reinforces the positive impact of foreign outside directors on firm value.

Research limitations/implications

This study offers a key to understanding corporate governance in that mutual monitoring and a balance among various types of stakeholders are crucial to value enhancement.

Originality/value

The paper provides clues to the extant diverse findings concerning the impact of foreign investors on firm value. It applies an integrated perspective to the empirical analyses of the impact of foreign investors by giving consideration to the agency – foreign outside directors – to implement management control on behalf of foreign blockholders.

Details

Management Decision, vol. 50 no. 2
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 5 June 2017

Liang Zhang, Zhe Zhang, Ming Jia and Yeyao Ren

The effect of prestigious CEOs on firm performance is not clear. By integrating resource dependence and agency theories, this paper aims to focus on how prestigious CEOs…

Abstract

Purpose

The effect of prestigious CEOs on firm performance is not clear. By integrating resource dependence and agency theories, this paper aims to focus on how prestigious CEOs affect firm performance and how informal relations between the CEO and outside directors affect agency costs and resource benefits associated with prestigious CEOs.

Design/methodology/approach

The authors use ordinary least squares (OLS) regression to analyze their data set, which is conducted by a sample of 4,226 Chinese listed firms from 2009 to 2013. The authors also use OLS regression to assess the sensitivity and robustness of their findings.

Findings

The findings indicate that prestigious CEOs are significantly and positively associated with firm performance. Moreover, the authors find the effect of prestigious CEOs on firm performance is more pronounced when prestigious outside directors interact with prestigious CEOs. Guanxi – a Chinese concept similar to camaraderie – attenuates this association, particularly when the CEO and outside directors share the same surname.

Research limitations/implications

Future research should consider whether there is a mediating link between prestigious affiliates (i.e. CEOs) and firm performance.

Practical/implications

This paper provides two practical implications. First, China Securities Regulatory Commission policymakers should pay more attention to outside directors’ quality and ability and their informal guanxi with the CEO. Second, prestigious CEOs may also have potential costs.

Originality/value

This study contributes to corporate governance literature and CEO-board relations literature by shedding light on how resource dependence and agency theories apply to corporate governance.

Details

Chinese Management Studies, vol. 11 no. 2
Type: Research Article
ISSN: 1750-614X

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Article
Publication date: 19 September 2008

Aditi Gupta, David Otley and Steven Young

Holding the number of outside directorships constant, this paper aims to test whether executive directors from superior performing firms are subsequently rewarded with…

Abstract

Purpose

Holding the number of outside directorships constant, this paper aims to test whether executive directors from superior performing firms are subsequently rewarded with better quality outside directorships.

Design/methodology/approach

The quality of new outside directorship appointments is modelled using a two‐step Heckman selection procedure to control for the probability of acquiring a new outside board seat. Outside directorship quality is estimated using an index formed from series of observable firm‐specific characteristics proxying for the following three latent aspects of quality: prestige, reputational risk and monetary rewards. The index aggregates across these three dimensions to produce an overall quality score, with higher scores signifying higher quality directorships.

Findings

Tests based on a sample of UK executive directors who subsequently acquire at least one new outside board seat show that the quality of newly acquired outside directorships is positively related to past and contemporaneous performance at the executive's own firm. Recent past performance appears to be a more important determinant of the quality of outside directorships than long‐run performance reputations. However, effects are largely confined to executives that either switch between boards or enter the outside directorship market for the first time.

Research limitations/implications

Findings support the view that the market for outside directorships operates (at least in part) as a meritocracy by rewarding executives from superior performing firms with better quality outside board appointments.

Originality/value

Prior work on the market for outside directorships focuses on explaining cross‐sectional variation in the number of outside board seats held. The paper is the first to measure and model directorship quality.

Details

Accounting, Auditing & Accountability Journal, vol. 21 no. 7
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 19 January 2010

John Byrd, Elizabeth S. Cooperman and Glenn A. Wolfe

The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks.

Abstract

Purpose

The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks.

Design/methodology/approach

The paper proposes a CEO allegiance hypothesis whereby long‐term relationships with executives and other directors will shift allegiance from shareholders to executives vs a more traditional expertise hypothesis that predicts superior monitoring of executives by directors with longer tenure. A generalized least squares regression methodology is used to examine the relationship between CEO compensation and outside director tenure.

Findings

For the full sample, board tenure variables were found to be insignificant. However, when examining a subsample of firms with CEO tenure of greater than six years or more, the relationship between CEO pay and the median tenure of outside directors becomes positive, supporting a CEO allegiance hypothesis.

Research limitations/implications

On a caveat, since this study relies on data for large bank holding companies over a short period of time, further research is needed to determine if the results carry over to a broader sample of firms and across time.

Practical implications

The results suggest that the independence of outside directors may be compromised when they serve for longer tenure periods together with the same CEO; an important consideration for better corporate governance.

Originality/value

The study provides a unique examination of outside director independence from the perspective of board tenure and the long‐term relationships with executives and other directors that may result in allegiance shifts away from shareholders and towards managers.

Details

Managerial Finance, vol. 36 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 21 November 2016

Tulay Ilhan Nas and Ozan Kalaycioglu

This study aims to understand the antecedents of export performance at the firm level. Building on agency theory but taking into account emerging market settings and…

Abstract

Purpose

This study aims to understand the antecedents of export performance at the firm level. Building on agency theory but taking into account emerging market settings and institutional differences, the authors investigate how the board composition determines the export competitiveness of the firms operating in an emerging country from the point of view of corporate governance mechanisms.

Design/methodology/approach

Using data from 221 exporting firms for four years (2007-2010), the authors find that there is a significantly positive relationship between board size and all measures of export performance, while a higher presence of outside directors on the board is negatively associated with export performance, consistently with expectations. The separation of chairman of board of directors and chief executive officer (CEO) positions has significantly positive impact on export performance. On the other hand, the authors find no support for the position that inside director professional representation neither reduce nor increase all measures of export performance of firms. In other words, the convergence with Western practices and consistently with agency theory’s claims is evident for both board size and CEO duality. However, the effects of inside professional and outside directors are no consistent with agency theorists’ expectations.

Findings

Using data from 221 exporting firms for four years (2007-2010), the authors find that there is a significantly positive relationship between board size and all measures of export performance, while a higher presence of outside directors on the board is a negatively associated with export performance, consistently with expectations. The separation of chairman of board of directors and CEO positions has significantly positive impact on export performance. On the other hand, the authors find no support for the position that inside director professional representation neither reduce nor increase all measures of export performance of firms. In other words, the convergence with Western practices and consistently with agency theory’s claims is evident for both board size and CEO duality. However, the effects of inside professional and outside directors are no consistent with agency theorists’ expectations.

Research limitations/implications

Export performance is one of the most widely researched areas within international marketing research but least reached topic of management. However, exporting continues to be an important mode of internationalization for multinational companies, especially operating an emerging economy. This study is one of the first studies on the impact of governance factors such as board structure on only export performance rather than overall (firm) performance in light of international management. In other words, the study of the determinants of exports in the context of an emerging economy is an important contribution to the literature, given that our understanding of how the board composition determines the export competitiveness from the point of view of firms operating in an emerging country such as Turkey. Moreover, this research investigates this relationship at objective export performance dimensions using primary data set from listed and non-listed export firms.

Practical implications

The current study offered in-depth information to multinational companies that aim to gain a competitive exporting advantage in Turkey. Further, the results of this study give managers an opportunity to see the reasons behind the success of the exporting firms from the point of view of corporate governance mechanism.

Originality/value

In this paper, the authors contribute to this recent stream of research providing evidence on the effects of governance mechanism on the export performance from the point of view of emerging countries. Building on agency theory but taking into account emerging market settings and institutional differences, and international management, the authors provide a new framework that models the linkages between board composition and export performance. This work helps us to gain a deeper understanding of how board dynamics contribute to the internalization of firms. Research in this area has been sparse, although some studies have linked governance with export intensity. In this effort, the authors differentiate from previous studies in several ways.

Details

Management Research Review, vol. 39 no. 11
Type: Research Article
ISSN: 2040-8269

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