The impact of managerial political ties on corporate governance and debt financing: Evidence from Ghana

In this study, we draw upon insights from agency theory to examine the impact of managerial political ties on cost of debt and also to explore whether corporate governance mediates this impact. We hypothesize that political ties reduce financial reporting quality, disclosure of non-financial information and board independence, and are therefore associated with higher interest rates. We also hypothesize that the negative effect of political ties on the cost of debt will be stronger if firms borrow from privately-owned banks versus government-owned banks. Using data from Ghana, we find support for our direct and moderation hypotheses; political ties are associated with high interest rates and poor corporate governance. However, we do not find evidence of mediation. Altogether, the findings reveal the dark side of political connections and highlight the cost of political embeddedness in emerging credit markets.     

中小商业银行公司治理机制与经营绩效关系的实证分析

理论和实证研究证明,良好的公司治理对金融体系稳健运行有十分重要的作用.商业银行公司治理的研究和实践既是银行业改革的迫切要求,也是银行业改革的核心内容之一.本文用36家商业银行2005年的截面数据,对股权结构、董事会、监事会和高管人员薪酬激励等四个治理机制与银行绩效之间的关系进行了实证研究.结果表明,国有与非国有控股商业银行绩效不存在显著差异,第一大股东对银行绩效的影响并不显著,但外部大股东能显著地提高银行绩效.董事会与监事会规模与银行绩效正相关,但独立性难以得到保证.此外,高管人员薪酬激励不能改善银行绩效.     

How does globalization affect corporate governance and accountability? A perspective from MNEs

This paper addresses how the global activities undertaken by multinational enterprises (MNEs) in international settings impact corporate governance mechanisms and accountability systems. International corporate governance and accountability research, whether from a political science, economics, finance, or accounting perspective, has thus far predominantly focused on the comparison of corporate governance schemes in different countries and on the investigation of institutional parameters that determine these schemes. Straying from this line of inquiry, this article discusses how globalization at the firm level affects governance and accountability systems at parent- and subsidiary-levels. It emphasizes how an MNE's globalization attributes such as globalization scale, foreign adaptation, global competition, and international experience influence the design of governance mechanisms such as board size, board composition, executive compensation, market discipline, interlocking directorate, ownership concentration, duality and inbreeding, as well as the design of accountability systems such as accounting information, auditing standards, and financial and non-financial disclosures. This article bases its conjectures on information processing and agency theories.     

Women on boards and bank efficiency in ASEAN-5: the moderating role of the independent directors

Corporate governance codes around the world promote women’s presence in corporate board. The extant literature suggests women directors contribute to improve monitoring and advisory role of the board. This study aims to examine the role of independent women directors in improving banks’ efficiency. Using 102 commercial banks from ASEAN-5 countries for a period of 1999–2012, we run generalized method of moments models to test the relationship between the variables. Our results show that banks with independent women directors on board contribute significantly to the bank’s efficiency level. Contrary to the literature, we found that the appointment of women directors or independent directors alone does not significantly enhance banks’ efficiency. The result suggests that women directors are more effective on boards if they are also appointed as independent directors. This finding implies that a combination of corporate governance mechanism is more powerful than relying on a single element of corporate governance.     

Corporate governance and credit rating in Islamic banks: Does Shariah governance matters?

We investigate whether Islamic banks with strong corporate governance benefit from higher credit ratings relative to Islamic banks with weaker governance and whether Shariah governance can affect the credit ratings of Islamic banks or not. We document, after controlling for Islamic bank-specific risk characteristics, that credit ratings are negatively associated with the number of blockholders, CEO power, the supervisory role of the Shariah board and investment deposits; and positively associated with share listing ownership, board independence, women directors, board directors expertise and Shariah board expertise. As well as, credit rating is higher for Southeast Asian Islamic banks and weaker for GCC Islamic banks.     

The governance of non-profit micro finance institutions: lessons from history

Microfinance is high on the public agenda, and better corporate governance has been identified as a key factor for enhancing the viability of the industry. However, recent literature on the subject struggles to identify the corporate governance mechanisms that influence the performance of the Micro Finance Institutions (MFIs). Guided by stakeholder and agency theories, this paper uses a historical parallel found in savings banks to present corporate governance lessons for MFIs, particularly non-profit MFIs, today. The findings indicate that monitoring by bank associations, depositors, donors, and local communities was important in securing the survival of savings banks. In addition, a willingness to expand their mission to serve wealthier customers alongside the poor helped the banks become financially viable. These findings could prompt a rethinking of microfinance governance, which stresses regulation, for-profit ownership, and traditional vertical board control. The paper argues that a broader and more stakeholder-based understanding of corporate governance is necessary. Moreover, the paper demonstrates that historical studies can provide governance lessons for today.     

Does the compensation level of outside director depend on its personal profile? Some evidence from UK

Combining human capital theory and equity theory, we developed and tested a model in which the outside directors’ total cash compensation is related to the outsider’s profile, as well as to the board and firm characteristics. Consistent with our model, characteristics of the outsider’s profile, in terms of his/her role and responsibility, meeting activities and length of service, are relevant. Only the director’s popularity, as a part of his/her human capital, has a significant effect on his/her compensation. Our empirical results confirm the necessity to create a stronger link between the remuneration policies of the outsider directors and their contribution in a board, in terms of human capital. The remuneration policies adopted by firms should be linked to practices on corporate governance useful for helping outsiders contribute confidently to their work of the board and receive ongoing support and information so they can develop their understanding of the total environment within they work. Then, we suggest having recourse to qualifications and professional skills as well as to specific training or board induction programmes defined by firms themselves. Finally, the Combined Code should promote the adoption and spreading of such practices on market.     

Governance strategy and costs: board compensation in Sweden

Shareholders are not identical, but differ in their objectives and actions. One difference is the level of delegation of the principal functions to the board, which we suggest can be observed through the level of directors’ compensation. We analyze the difference in board compensation through the concept of governance strategy and suggest two distinct categories of shareholder strategies: the company governance strategy and the financial governance strategy. These strategies create different distributions of governance costs, which we separate into principal costs and agency costs. We claim that the financial governance strategy adopts a higher level of delegation, which implies that the principal costs are assumed by the corporation and that agency costs are higher. This in turn can explain the higher compensation for the directors of the board compared to compensation under the company governance strategy. We test our hypothesis using a three-year panel of Swedish listed corporations and find that shareholders pursuing a financial governance strategy are associated with higher levels of board compensation. These findings suggest the existence of differences in governance strategies, reflected in governance costs through board compensation, among different types of shareholders in a corporation.     

Board age and corporate financial fraud: An interactionist view

Unlike past studies which have focused on either executives or boards of directors, this study takes an interactionist view to investigate the determinants of corporate financial fraud. We propose that CEOs evaluate the opportunities for financial fraud according to both situational stimuli and their own personal characteristics. As older directors are often more experienced and have more to lose if they fail in their monitoring duties, we expect them to be more capable and to have stronger motivation for monitoring CEOs closely. As such, we propose that a CEO is less likely to engage in corporate financial fraud when the average age of the board of directors increases (i.e., board age). However, when the CEO is older than the board, the CEO may attach less importance to board age when deciding whether to commit fraud. Therefore, we further propose that the CEO–board directional age difference can weaken the effect of board age. Our empirical analyses provide strong support for these hypotheses. Our study contributes to the literature on corporate governance by highlighting the often neglected roles of board age and CEO–board directional age difference in deterring corporate financial fraud.     

Board compensation and ownership structure: empirical evidence for Italian listed companies

This paper investigates the relationships among corporate ownership, the level of board compensation, and firms’ future performance within Italian listed companies. Board compensation could be related to corporate ownership characteristics, like the type of controlling shareholder, ownership concentration, the separation between cash flow and voting rights, and the presence of shareholders’ agreements. The evidence of high levels of board compensation associated with certain governance characteristics could signal, in a principal-agent framework, rent extraction by entrenched managers or by controlling shareholders versus minority shareholders; high board compensation, however, could be related to the need to hire directors with higher professional standing and also to the desire to create a network with other companies through the enlargement of the board, according to a social network view. In this paper we disentangle this issue showing the relationship between excess board compensation and future performance: examining firms listed on the Milan Stock Exchange over the period 1995–2002, we show that board compensation is linked to many governance characteristics, but excess compensation is never positively related to future performance. For founder family firms, in particular, high board compensation is associated with (a) smaller board size; (b) higher proportion of family members on the board; (c) lower future performance. The whole evidence therefore doesn’t support the hypothesis suggested by the social network view, but is consistent with a rent extraction hypothesis. These results could add new empirical evidence to the recent debate on the need for global remuneration reform. According to our results, some control mechanism and an increase in transparency of executive compensation schemes could be appropriate.     

Financial Globalization and the Governance of Domestic Financial Intermediaries

We model a small open economy in which both domestic financial intermediaries and entrepreneurs face incentive constraints, as in Holmstrom and Tirole (1997) , to study the general equilibrium impact of various types of capital inflows on the efficiency and governance of domestic banks. Banks have an advantage in monitoring firms, but the latter can collude with banks and offer side‐payments to reduce the intensity of monitoring. Opening up to international capital flows makes domestic banks’ capital scarcer relative to uninformed capital, thus increasing the relative cost of monitoring. We show that capital account liberalization has ambiguous effects on the governance of the domestic financial system by sometimes increasing firms’ incentives to collude with banks. We characterize the conditions under which governance is more likely to deteriorate after opening up the capital account, and discuss the effects on investment, productivity and output. We also analyze the effects of foreign direct investment in the corporate and banking sectors. Stylized facts are consistent with the predictions of the model.     

Regionales Clustering im Aussch��ttungsverhalten von Sparkassen

A significant part of German savings banks does not pay out dividends when they are legally possible. Previous studies show that the conservative payout policy is related to the capitalization and the size of a savings bank and the financial standing of its local authority. This study reports evidence for a regional clustering in addition to the known economic determinants. Our result suggests that savings banks are more prone to paying dividends when the neighboring banks do the same. We hypothesize this clustering to be caused by a multi-stage principal agent relationship in German savings banks. One consequence of this structure is that the representatives of the local authority in the savings bank??s governing board will typically advocate higher dividends than the management. However, they cannot bring to bear their dividend recommendation because they have an information disadvantage with respect to the bank??s management. In such a situation, it is but natural to use the payout policy of neighboring savings banks as a reference point. We propose a test of this hypothesis based on data for all German savings banks in 2005 and 2006. In Probit and (modified) Tobit regressions, our distance measure turns out to be by far the most important determinant of the probability and size of dividend payouts.     

The Role of Financial Institutions in the Corporate Governance of Listed Chinese Companies*

This paper explores the role of Chinese financial institutions in the corporate governance of listed companies through interviews with both senior managers of financial institutions and board directors of listed companies. Our results show that, while most securities companies are passive investors, a good proportion of the active mutual funds help their portfolio companies prepare financial forecasts, standardize their operations, raise external funds, strengthen their company image in the capital markets, and sometimes intervene in corporate issues. This limited role can be attributed to a number of factors specific to the Chinese context including highly concentrated state ownership, an immature regulatory environment, inadequate transparency and disclosure of financial information, and weak corporate governance within financial institutions themselves. It could also be affected by several other factors that are considered to cause institutional passivity in developed countries such as conflicts of interest, monitoring costs and lack of expertise.     

Board governance of Strategic Change: An assessment of the literature and avenues for future research

Boards of directors play a central role in governing corporate strategic change. We systematically review corporate governance research on strategic change published over the past 40 years, differentiating between strategic change types and board characteristics. We identify three developments: a focus on specific strategic change types, board composition and structure, and North American listed firms as a dominant study context. Yet, our analysis of the literature shows that research on board governance of interrelated strategic changes, on different board roles and behaviour, and on the governance of strategic changes across different contexts remains underdeveloped. To address these research gaps, we suggest three future research avenues: (1) examining how boards govern interrelated changes in a strategic change portfolio and its evolution over time; (2) studying the mediating relationship between board governance (particularly different board roles and behaviour), strategic changes, and corresponding outcomes; and (3) gaining a better understanding of the role of context in board governance of interrelated strategic changes. We contribute to corporate governance research by developing a framework that synthesizes extant research on the relationships between different board governance variables and strategic change types, highlights important research gaps, and outlines several future research directions to address these gaps. Our framework and literature overview serve as analytical tools to examine whether boards are well-designed and prepared to govern multiple and interrelated strategic changes.     

International corporate social responsibility and post-entry performance of developing market INVs: The moderating role of corporate governance mechanisms

Building on the stakeholder, agency, and resource dependence theories; this paper investigates the role of international corporate social responsibility (CSR) for the post-entry performance of developing market international new ventures (INVs) in the presence of corporate governance mechanisms to overcome their agency and environmental problems. We test and validate the conceptual model using survey data collected from 110 INVs operating in the developing market of Pakistan. Our results show that international CSR promotes the post-entry performance of developing market INVs. Further, we found that this association is moderated by corporate governance mechanisms of ownership, board independence, and returnee board members. Specifically, the relationship between international CSR and post-entry performance is weaker when ownership is concentrated but stronger when outsider and returnee board members are present in developing market INVs. The findings of this study have important theoretical and practical implications for INVs' social strategies and international performance contingent upon corporate governance.     

Ex-post governance in joint ventures: Determinants of monitoring by JV boards of directors

Considerable advances have been made in corporate governance research in recent years and opportunities exist to consider these developments within alliances. We extend the “scope of operations” hypothesis to the domain of joint ventures. This proposition suggests that the monitoring carried out by boards increases when organizations become more complex. The inherent characteristics of JVs generate unique sources of complexity that are currently unexplored in the corporate governance literature. First, we seek to determine their influence on monitoring by using primary data on JV board monitoring. Second, we adopt the size of JV boards as a proxy for monitoring in order to examine whether the determinants of board size and monitoring in fact coincide and to reveal if certain effects are masked by using board size as a simple proxy for monitoring. Doing so enables us to investigate the black-box of what boards actually do as well as extend governance research to other organizational forms. Our findings confirm that the unique characteristics of JVs influence the information needs by the boards resulting in more monitoring by JV directors. Our findings show there is value in bridging alliance theory and the literature on corporate governance research. We also advance practitioner's understanding by providing suggestions on how to structure JV boards in relation to their complexity.     

公司治理于财务困难公司效果之研究

美国Enron案发生后,为维护资本市场安定与保护投资大众,各国均致力提倡公司治理,如强化董监结构、股权结构与提升透明度等。然而,在主管机关与公司管理当局均认为企业公司治理机制已有显著的强化后,台湾企业诸如博达、讯碟等公司仍然持续爆发弊案。因此,治理政策是否确实落实执行于各企业,值得深入探讨。因此,本研究拟以财务危机公司的公司治理机制及其影响为探讨重点。首先了解公司爆发财务危机前的公司治理运作情形,进而讨论在发生财务危机后,采用各项公司治理机制是否对提升公司财务状况有所帮助,提供主管机关及投资人决策之分析。实证结果显示,董监事持股,控制股东担任董事监察人、专业经理人担任董事席位数、董事会规模这三项皆可做为投资人投资公司的参考,及财务危机公司是否能转危为安的判断依据。     

Executive remuneration standards and the “conformity gap” at controlled corporations

In this paper we analyze the relationship between conformity to executive remuneration standards, corporate ownership, and the level and structure of CEO compensation for large European listed companies in the years 2007 and 2010. We show that controlled corporations conform to executive remuneration standards less than widely held firms. We also show that weaker compliance is associated with lower CEO pay and more cash-based incentive structures. We interpret this “conformity gap” from the perspective of individual firms and from a societal perspective, with the aim to contribute to frame the policy questions concerning executive pay at controlled corporations. Different policy implications depend on whether the conformity gap reflects a lower need for managerial incentives, given the monitoring by controlling shareholders, or the latter’s willingness to extract private benefits of control. We argue in this paper that the former hypothesis prevails, so that regulators should abstain from increasing the level of enforcement of executive remuneration standards.     

银行贷款、商业信用融资及我国上市公司的公司治理

本文讨论了银行贷款以及商业信用融资对我国上市公司公司治理的影响.通过对1995到2000年间上市公司CEO更换的研究,我们得到两个结论:第一,在经营业绩为负的公司中,银行贷款与强制性CEO更换存在负向关系,而商业信用融资与强制性CEO更换存在正向关系;第二,在盈利能力一般的公司中,商业信用融资与强制性CEO更换仍为正向关系,但银行贷款与强制性CEO更换却不存在明显的关系.以上结果表明,商业信用融资在CEO强制性更换中起到了积极的作用,改善了上市公司的公司治理,而银行贷款却没有起到相应的作用,甚至有负面的作用.     

The relationship between corporate governance and the cost of equity capital. Evidence from the Italian stock exchange

The aim of this paper is to investigate the relationship between corporate governance (CG), in terms of its internal significance, and the cost of equity capital (CEC), based on a sample of companies listed on the Italian Stock exchange on 31/12/2009. We used Italy as a case study mainly because we expect that the key features of the Italian setting in terms of financial markets and corporate governance will impact on the relationship between CG and CEC. On the basis of a literature review, we identify the attributes of internal CG predicted as having a direct effect on CEC. The selected CG attributes (board independence, board size, existence of the audit and the nomination/remuneration committees and independence of board committees) have been used to construct a comprehensive corporate governance quality index for each firm. The CG score, as indicator of CG quality, is the independent variable of the multiple regression equation that brings together CG score and CEC (dependent variable), after controlling for the variables related to the risk. This paper belongs to the current of research regarding the relationship between CG and CEC, and it contributes to the literature dealing with CG and firm value determinants, by providing additional information concerning the impact of CG on another important determinant of firm value, i.e. CEC, in a context, that of Italy, which has not been extensively explored in previous research. The main contribution of the paper hinges on the setting chosen, in terms of how CG and key financial markets features impact on the relationship between CG and CEC offering new insights not previously addressed by literature. The results provide evidence of a significant association between the CG score and the firm’s equity capitalcost, after controlling for differences in the Fama and French (J Financial Econ 33:3-56, 1993) risk factors.