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Article
Publication date: 22 February 2013

Kuntara Pukthuanthong, Thomas J. Walker, Dolruedee Nuttanontra Thiengtham and Heng Du

– The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.

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1792

Abstract

Purpose

The purpose of this paper is to examine whether and how family ownership enhances or damages firm value.

Design/methodology/approach

The paper studies a sample of Canadian companies listed on the Toronto Stock Exchange (TSX) between 1999 and 2007 and apply multivariate regression with firm value as a dependent variable. The paper measures firm value as Tobin ' s Q and ROA based either on net income or EBITDA. The independent variables include family firm dummy and ownership percentage.

Findings

It is found that control-enhancing mechanisms which are often employed by family companies add value to companies. Furthermore, it is found that agency conflicts between ownership and management are less costly than those between majority and minority shareholders, suggesting that family ownership helps resolve the agency conflicts between ownership and management and in turn enhances firm value. Finally, it is found that family companies with founders as CEOs outperform those with descendants as CEOs.

Research limitations/implications

The paper studies Canadian family firms; as such, the sample size is not relatively large. Nonetheless, the results should be generalized as Canada is one of the largest markets in the world and have high integration with the rest of the world.

Practical implications

The results suggest investors should invest in family ownership firms.

Originality/value

The paper shows whether firm ownership increases firm value and the determinant of family firm value.

Details

International Journal of Managerial Finance, vol. 9 no. 1
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 27 April 2020

Affaf Asghar, Seemab Sajjad, Aamer Shahzad and Bolaji Tunde Matemilola

Corporate governance (CG) is an ongoing interesting topic getting the attention of market participant, business regulators and researchers in today’s business environment…

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1186

Abstract

Purpose

Corporate governance (CG) is an ongoing interesting topic getting the attention of market participant, business regulators and researchers in today’s business environment. The purpose of this study is to analyze the moderating role of earnings management on CG-value and CG-risk relationship in the emerging economy of Pakistan.

Design/methodology/approach

A panel data analysis is used in this study. A panel data of 71 non-financial listed companies of Pakistan for the 2008-2017 period is considered for this study. Secondary data is collected from the annual reports of non-financial firms listed on PSX. Seven econometric equations are developed to test the research hypothesis.

Findings

The results reveal that CG significantly enhances the firm value and performance measures. Moreover, CG mitigates the practices of earning management and eliminates the risk that develops opportunistic behavior among managers to commit frauds.

Practical implications

The results of this study suggest that the board of directors (BODs) should intensify their governance role and ensure that the executives perform their duties to maximize the wealth of the shareholders and not engage in any misrepresentation of accounts that may lower the company position and decrease the firm value. Moreover, the managers should be informed about their accountability and acknowledged that at the end of the year, they would be audited by an expert’s auditors for their responsibilities. Concerning regulatory bodies, regulatory authorities should ensure that there must be at least one independent member on the board. The better-governed system reduces both agency conflicts and enhances firm value.

Originality/value

A number of studies have already been undertaken by multiple investigators to build connection among CG with firm performance, but there is not even a single study in the literature that considers CG, firm value, firm Risk and discretionary earning management as a whole in one model to generalize its results in the emerging economy of Pakistan. A fundamental element of current analyzation process addresses that this is the very first graft of study conducted in Pakistan having combination of four variables together in one revision. There is minimal work that focuses on moderating effects of earning management on the CG-value and CG-risk relationships. This study uses two standard measures of firm performance (i.e. ROA and Tobin’s Q), one proxy of earning management (DEM) and three attributes of CG (board size, audit quality and ownership structure). Previously, researchers have not investigated a model that combines variables (CG as independent and Firm performance and Firm Risk as dependent along with DEM as moderator) in a single study.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 4
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 4 September 2020

Martha Coleman and Mengyun Wu

This study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in…

Abstract

Purpose

This study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in Nigeria and Ghana. It further examines the moderating effect of financial distress on the relationship between CG and CP.

Design/methodology/approach

The study used panel data of 102 nonfinancial listed firms of Nigeria and Ghana stock exchange for the period 2012–2016 with total observation of 510. The study first used OLS in estimating the influence of CG mechanisms on CP. Due to multicollinearity in the independent variables, ridge regression was employed.

Findings

It was revealed that ownership structure index and board compliance and diligence index, board size, board disclosure, ownership structure, shareholders' right and board compliance and diligence index had positive influence on ROA and ROE. Growth of Tobin's Q depends on board procedure and board compliance and diligence index. Also, financial distress (ZFS) negatively moderates the relationship between board structure index, board disclosure index, board procedure index, shareholders' right and performance (ROA and ROE) but negatively moderates between ownership structure index and Tobin's Q.

Practical implications

This study provides interesting findings to policymakers in full implementation of CG codes as stated by OCED (2015) by West African firms with greater emphasis on compliance and diligence index since it positively influences all CP measures.

Originality/value

The study provides evidence of the importance of the introduction of the new index: compliance and diligence, which looks at disclosure of CSR activities. This has been overlooked by most researchers especially in Africa in assessing quality CG mechanisms.

Details

International Journal of Productivity and Performance Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0401

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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 June 2015

Mark J. Holmes and Nabil Maghrebi

The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important…

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1954

Abstract

Purpose

The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important explanation of investment behaviour that bridges the financial and real sides of the economy. However, the empirical evidence in support of Q as a means of explaining aggregate business investment is rather weak. We answer a number of questions about the relationship between investment expenditure and Q. In particular, is the relationship governed by non-linearities? If so, what is the nature of the non-linearities present?

Design/methodology/approach

The rationale for paying closer attention to non-linearities is based on the presence of information asymmetries and possible dependence of adjustments on non-linearities with respect to factors such as fixed costs, threshold effects and irreversibility, which are entertained in the investment literature. Using the non-linear vector error-correction model procedure advocated by Hansen and Seo, we show that in the context of the US economy, investment has a long-run relationship with Q that is based on threshold error correction.

Findings

There are asymmetries present with respect to error correction or the speed of adjustment towards long-run equilibrium. We find that investment expenditure only responds significantly to long-run disequilibrium from Q during a particular regime. Such a regime is characterised by long-run disequilibrium based on high or rising investment expenditure compared with a relatively weak stock market.

Originality/value

The authors provide new insights into the relationship between Tobin’s Q and real investment. In contrast to previous work, they find that error correction based on the adjustment of real investment is regime-specific and function of the size of departures from long-run equilibrium. The tests also allow for the identification of periods when error correction has occurred. Not only are these insights significant for future research on financial crises, market volatility and the impact of debt, but for policymaking purposes as well.

Details

Studies in Economics and Finance, vol. 32 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 3 August 2021

Ahmad Yuosef Alodat, Zalailah Salleh, Hafiza Aishah Hashim and Farizah Sulong

This study aims to assess the effect of director board and audit committee attributes and ownership structure on firm performance. In general, resource dependency and…

Abstract

Purpose

This study aims to assess the effect of director board and audit committee attributes and ownership structure on firm performance. In general, resource dependency and agency theories have underlined the superior performance of firms equipped with stronger Corporate Governance (CG) versus those of deficient governance. Concurrently, the study delineated the provisions of ownership structure provision, specifically foreign ownership and institutional ownerships, thus describing the component denoting the structural significance in explicating firm performance.

Design/methodology/approach

The current study implemented an empirical approach involving the construction of extensive CG measures thus, subjected to 81 non-financial firms listed on the Amman Stock Exchange spanning the period of 2014–2018.

Findings

The current study identified the positive and significant relationship between the board of directors and audit committee characteristics with the firm performance measures tested, namely, return on equity (ROE) and Tobin’s Q. In terms of ownership structure, both foreign and institutional ownerships yielded a significant and positive relationship with ROE. Meanwhile, Tobin’s Q led to an insignificant and negative relationship between both ownership types and firm performance measures.

Practical implications

The analytical outcomes substantiate the possibility of enhanced performance shown by growing global firms because of the implementation of CG mechanisms, specifically because of the practices resulting in minimised agency costs.

Originality/value

The current study offers novel evidence detailing the impact of CG effectiveness towards performance and its implementation in emerging markets following the minimal amount of scholarly efforts on the topic. It is a timely contribution towards the current understanding of the relationship linking governance and performance for the purpose of ensuring the adoption and imposition of a strong corporate governance code by the government.

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: 9 October 2017

Irina Berezinets, Yulia Ilina and Anna Cherkasskaya

The purpose of this paper is to investigate the link between board structure and performance of public companies in Russia – an emerging market with unique institutional…

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1917

Abstract

Purpose

The purpose of this paper is to investigate the link between board structure and performance of public companies in Russia – an emerging market with unique institutional background and a variability of corporate governance (CG) practices across its companies.

Design/methodology/approach

Panel data analysis was applied on a sample of 207 Russian companies that frequently traded in the Russian Trading System during the period 2007-2011, in order to test hypotheses on the relationships between board size, board independence, gender diversity, presence of board committees and financial performance, as measured by Tobin’s Q.

Findings

The results show a positive relationship between Tobin’s Q and the board’s gender diversity. The analysis demonstrates that smaller and bigger boards are associated with a greater Tobin’s Q value.

Originality/value

The findings provide additional evidence of how board structure is related to its effectiveness and corporate performance in countries with concentrated ownership, highly variable CG practices and a lack of proper implementation of corporate law and governance codes. The paper contributes to the existing empirical evidence on the advantages of small and large-sized boards and on gender diversity, and is the first investigating the relationship between Russian companies’ board committees and market-based performance. The results regarding board independence and committees suggest that these mechanisms are still not widely recognized for their role in CG and company performance in Russia.

Details

Managerial Finance, vol. 43 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 10 December 2018

Zaid Saidat, Mauricio Silva and Claire Seaman

The purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and…

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2029

Abstract

Purpose

The purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015.

Design/methodology/approach

This research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’s Q as proxies for corporate financial performance.

Findings

The study found that board size both in term of Tobin’s Q and ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’s Q. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’s Q in family and non-family firms.

Originality/value

Studies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

Details

Journal of Family Business Management, vol. 9 no. 1
Type: Research Article
ISSN: 2043-6238

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Article
Publication date: 16 July 2020

Sunghee Choi, Md. Abdus Salam and Youngshin Kim

The purpose of this paper is to investigate the effect of foreign currency derivative (FCD) usage on firm value. In specific, the authors study the significance of the…

Abstract

Purpose

The purpose of this paper is to investigate the effect of foreign currency derivative (FCD) usage on firm value. In specific, the authors study the significance of the relationship between FCD usage and firm value for exporters and non-exporters, respectively, with consideration of conditions of exchange rate movements.

Design/methodology/approach

As the main empirical test, this paper utilizes the multivariate Tobin's Q model for a panel dataset of 125 non-financial firms, which have been continuously listed on the Dhaka Stock Exchange from 2010–2018. The authors divide the sample firms into two groups: exporters and non-exporters based on theoretical background and estimate the relationship between FCD usage and the firm value measured by Tobin's Q for each firm group. Also, as a complementary test, the Fama–French three-factor model is used to estimate the effect of FCD usage on the monthly portfolio returns of the firms when exchange rate levels and volatility are considered.

Findings

First, the effect of FCD usage on firm value significantly exists in the Bangladeshi non-financial firms from 2010–2018. Specifically, the FCD effect on firm value is negative (hedging discount) for exporters, whereas the FCD effect is positive (hedging premium) for non-exporters. Second, the multivariate analyses suggest the hedging discount (premium) for exporters (non-exporters) is consistent only when the domestic currency appreciates (depreciates). Third, the FCD effect on firm value is consistently positive for non-exporters when exchange rate volatility is higher.

Research limitations/implications

Further studies could be conducted with the detailed data of the firms' hedging performance, if they are available. Particularly, the cost and revenue data associated with hedging would help identify evident reasons for exporters' hedging discounts in Bangladesh. Moreover, the best hedging option for maximizing the Bangladeshi firm value could be analyzed with the detailed FCD type data, such as futures, options and swaps. Further refinement of these data would improve institutional capability for substantive growth in frontier markers.

Practical implications

This paper provides practical implications for corporate managers in charge of managing foreign exchange risk in Bangladesh. First, closer accounting observation is much necessary for the firms to accurately evaluate whether the FCD usage is beneficial in their cash flows because the exporters come to have two large costs: entering foreign markets and carrying FCD program. Second, for better value from using FCDs, the exporters should learn how to utilize appropriate financial derivatives. FCD usage is beneficial when the exporters are fully aware of what their real risks are and the role of appropriate derivatives within its portfolio strategy.

Social implications

A policy reducing the costs of either foreign market entry or FCD usage would be helpful for lessening the FCD discount effect. Also, a long-term policy that enables the born-to-exporters to establish substantive positions in the home market would be helpful for enhancing the cash inflow capability, thereby causing the firm value structure to be strengthened.

Originality/value

The paper has originality because it bridges the gap in the literature. First, the authors find a new empirical result regarding the significant FCD effect on a frontier market, although the FCD effect deals with the small and secondary risk in the previous literatures. Second, finding the contrasting FCD effect between the exporters and non-exporters sheds lights on the importance of firm-specific characteristics for precisely evaluating the FCD effect on firm value. Third, we find that the significant FCD effect is prominent by condition of exchange rate movements, which has been overlooked in prior literature.

Details

International Journal of Emerging Markets, vol. 16 no. 8
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 30 December 2020

Giacomo Morri, Federico Palmieri and Emiliano Sironi

The purpose of this study is to analyze the determinants that lead REITs to pay out more dividends than the required level to retain their tax-favored status. In…

Abstract

Purpose

The purpose of this study is to analyze the determinants that lead REITs to pay out more dividends than the required level to retain their tax-favored status. In particular, the focus is on the effect that information asymmetry has on REITs’ excess dividends distribution.

Design/methodology/approach

A sample of 341 REITs from the USA, France, the UK, Spain, Belgium, Germany, the Netherlands and Italy has been analyzed for the period 2000–2016. Employing multiple linear regression models, the effects of information asymmetry, cash flow, size, ROA, leverage and treasury shares on excess dividends have been explored.

Findings

Results indicate that REITs with greater information asymmetry distribute significantly more excess dividends, with superior evidence in Europe than in the USA. Regarding other determinants, cash flow influences excess dividends the most, whereas ROA and common shares repurchase have an inverse relationship with excess dividends.

Practical implications

The paper explores the effects of excess dividends distribution on the most relevant REITs features. The joint analysis of the European and the US samples allows this study to make a comparison between the two markets and to identify affinities and differences.

Originality/value

The paper tests whether a proxy of asymmetry information plays a role in affecting the excess dividends distribution. In contrast to previous researches, it expands the analysis by comparing the US and European markets to underline any difference in the effect of asymmetry information on excess dividends. The topic has never been investigated before in relation to the European market.

Details

Journal of Property Investment & Finance, vol. 39 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

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