Board attributes and foreign shareholdings in Malaysian listed firms

This study examines the association between foreign shareholdings and several characteristics of board of directors in the context of a developing capital market. Using data of 777 listed firms on Bursa Malaysia for the financial year 2008, the study predicts that foreign shareholdings are positively related to board independence, multiple directorships, and financial literacy of the board of directors. The study finds a strong positive relationship between multiple directorships and foreign shareholdings. Contrary to our expectation, the association between board financial literacy and foreign shareholdings is negative and significant. With regard to the link between board independence and foreign shareholdings, we find weak evidence to support our prediction that there is positive relationship between board independence and foreign shareholdings. The multivariate results also show strong positive relationships between foreign shareholdings and number of foreign directors on boards, and between foreign shareholdings and audit quality. The study also documents a significant negative association between foreign shareholdings and firm size, and between foreign shareholdings and book-to-market ratio. The findings of the study supports the view that multiple directorships is an important asset to firms in emerging markets partly due to limited pool of potential talents and experts which in turn could signal reputational capital and quality of directors. Since there is a mandated presence of finance and accounting qualified director on the audit committee, foreign shareholders can somewhat rely on the oversight of audit committee instead of depending entirely on the board of directors for the quality of financial statements and financial reporting oversight. Finally, the presence of foreign directors on a board of directors may signal a firm’s commitment to adopt good corporate governance practices. It is also possible that foreign investors can influence corporate governance through their participation on the board of directors.     

When Boards Matter: The Case of Corporate Social Irresponsibility

While academic research has made remarkable progress in understanding corporate social responsibility (CSR), we have scant understanding of corporate social irresponsibility (CSiR). This paper adopts a stakeholder‐agency perspective towards CSiR to ask two related questions: (1) What board‐level structures can monitor management to reduce CSiR? and (2) What are the conditions that render board monitoring more effective? Employing a unique objective measure of CSiR and a sophisticated system generalized method of moments with dynamic panel model on a sample of publicly listed firms in the USA between 2002 and 2015, this paper demonstrates how firms with a specific board‐level governance bundle (i.e. a large, more independent board, with a board CSR committee, a higher proportion of women within boards with frequent director activity) are better equipped to reduce irresponsible behaviours, both in terms of number of irresponsible incidents as well as in terms of their economic costs to the firm. Moreover, the effectiveness of this governance bundle sustains under conditions of high institutional ownership and high board remuneration. This paper has implications for CSR and corporate governance literatures, as well as for managers and policymakers.     

The causes of gender diversity in Malaysian large firms

The issue of women’s representation at the decision-making level in Malaysia has received special attention from the Government since 2004, the year in which it adopted a policy requiring that 30 % of the posts at the decision-making level in the public sector be filled by women. In 2011, the policy was extended to the private sector where 30 % of listed firms’ board seats are to be allocated to women with 2016 being the deadline for compliance. To this end, this paper aims at examining the factors that determine the appointment of women to the boards of Malaysian large firms. Large firms were chosen in this study because they have the resources and the capacity to adopt the policy more readily than smaller firms. The results reveal that gender diversity is positively associated with board size and the presence of family on the board. That is, the larger the board, the more likely it is that women sit on it. The fact that the presence of women on the board is associated with the presence of one or more family members on the board means that the appointment of women to the board is very much influenced by family ties rather than commercial reasons. The results also reveal a positive association between board independence and the proportion of women directors. Further, it is found that board independence is associated positively with the presence of independent women directors. Finally, the results show that firm performance is negatively associated with gender diversity. That is, firms with low financial performance are more likely to have women on their boards. Hence, taken altogether, the evidence suggests that the appointment of women to the board is very much driven by tokenism and family connection rather than by the business case.     

All on board? New evidence on board gender diversity from a large panel of European firms

Using a unique database of over 20 million firms over two decades, we examine industry sector and national institution drivers of the prevalence of women directors on supervisory and management boards in both public and private firms across 41 advanced and emerging European economies. We demonstrate that gender board diversity has generally increased, yet women remain rare in both boards of firms in Europe: approximately 70% have no women directors on their supervisory boards, and 60% have no women directors on management boards. We leverage institutional and resource dependency theoretical frameworks to demonstrate that few systematic factors are associated with greater gender diversity for both supervisory and management boards among both private and public firms: the same factor may exhibit a positive correlation to a management board, and a negative correlation to a supervisory board, or vice versa. We interpret these findings as evidence that country-level gender equality and cultural institutions exhibit differentiated correlations with the presence of women directors in management and supervisory boards. We also find little evidence that sector-level competition and innovativeness are systematically associated with the presence of women on either board in either group of firms.     

Females and Precarious Board Positions: Further Evidence of the Glass Cliff

The ‘glass cliff’ posits that when women achieve high profile roles, these are at firms in precarious positions. Previous research analysed appointments (male/female), estimated the precariousness of firms involved and drew inferences about the glass cliff. This study is different as it directly tests the relationship between a precarious situation and changes in board gender diversity. The sample is companies listed on the UK stock exchange reporting an initial loss in the years 2004–2006. A matched control sample is used in a difference‐in‐differences analysis to avoid inadvertently attributing improvements arising from societal/regulatory changes in gender diversity to the loss event. Findings suggest that when the loss is ‘big’ there is a difference in the increase in gender diversity versus both the control and the ‘small’ loss subsamples, i.e. compelling evidence of the glass cliff. In the context of ongoing political and social debates about women on boards our work (i) identifies continuing structural barriers for women ascending to board level in that women are more likely to be over‐represented on boards of companies that are more precarious and (ii) sounds a note of caution about celebrating increased gender diversity on boards without considering the precariousness of the company involved.     

Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity

This study empirically analyzes whether gender diversity enhances boards of directors’ independence and efficiency. Using data from 3,876 public firms in 47 countries and controlling for a wide set of corporate governance mechanisms, we find that firms with more female directors have higher firm performance by market (Tobin’s Q) and accounting (return on assets) measures. The results also suggest that external independent directors do not contribute to firm performance unless the board is gender diversified. These results hold with respect to different estimation models and robustness tests. Overall, our findings provide evidence that the female directors enhance boards of directors’ effectiveness. Finally, we find that firms that are concerned with board independence, and that firms in more complex environments are more likely to have gender-balanced boards.     

Corporate Reputation: Do Board Characteristics Matter?

Our study draws on institutional and signalling theories to postulate relationships between board characteristics and corporate reputation. Based on a sample of 324 firms featured in Fortune's list of most admired corporations in the USA, our findings indicate that board characteristics significantly influence the assessment of firm reputation by the business community. Specifically, we found that firms with a greater proportion of outside directors and those with larger boards exhibited better reputation than those with smaller boards and a higher proportion of insiders. In addition, we observed an inverted‐U relationship between the average tenure of outside directors and corporate reputation. However, contrary to expectations, our findings indicate a negative association between independent leadership structure (i.e. absence of duality) and corporate reputation.     

Corporate governance and social norms during financial crisis: evidence from France and Saudi Arabia

The resistance to financial crisis and compliance with social norms and effectiveness of corporate governance mechanisms is considered recently as a good matter of concern. Focusing on differences between French and Saudi firms, we examine the effect of (1) board of directors, (2) audit committee, (3) compliance with Corporate Social Responsibility activities, (4) compliance with Shariah principles on financial volatility during subprime crisis of 2007. We find that larger boards, larger audit committees, independent members on boards and audit committees are related negatively to financial volatility. The result supports corporate governance theory which suggests that corporate governance variables outlined provide effective of monitoring of the management thereby enhancing firm’s resistance to financial crisis. In addition, we find that compliance with CSR alone does not explain the financial volatility. Its concert with corporate governance variables is necessary. This result supports stakeholder theory which argues that companies compliant with CSR activities in their business strategy and have larger boards and audit committees, and independent directors on boards and audit committees resist more financial downturns and any economic shock. Furthermore, we find that compliance with Shariah norms plays a significant role in protecting shareholder interests, improving functioning of corporate governance mechanisms and affect positively the resistance of Saudi firms to financial crisis.     

Internationalization of family firms: the effect of ownership and governance

Despite family firm’s dominant role in economies worldwide, there is little empirical knowledge on their internationalization. Drawing on a sample of Austrian firms, this paper investigates the impact of family influence and various governance factors on internationalization. The findings reveal an inverted U-shaped relationship between family influence and internationalization. Family firms with medium family influence are the most internationally active companies. This indicates that concerning internationalization the advantages of being a family firm are highest when the family’s ownership share and involvement in management and governance boards is not too extensive. Additionally, neither the incumbent generation, nor the level of non-family executives in the management board, nor the existence of a supervisory board has a significant influence on going international. Since advisory boards seem to foster internationalization, they might be an adjuvant means of equipping family firms with the necessary capabilities, know-how and contacts to operate internationally.     

Managerial dominance and audit committee independence in Spanish corporate governance

The purpose of this paper is to analyse whether the independence of audit committees is affected by the degree of control exerted by managers over the board of directors. Results from a sample of 75 listed Spanish companies show that the majority of firms that voluntarily adopted an audit committee between 1998 and 2001, made an effort to guarantee their independence from management. The degree of independence is shown to be determined by the proportion of inside directors on the board, the same person holding both the CEO and board chairperson positions, and the level of management ownership. These findings may have political implications because existing regulations do not limit the presence of inside directors on audit committees. The presence of inside directors may compromise effectiveness, turning audit committees into instruments of management to provide the appearance of monitoring.

Bankers on boards as corporate governance mechanism: evidence from Poland

This paper examines whether a bank exercises a monitoring role when a banker is represented on a firm’s board. Bank monitoring reduces information asymmetries, and hence lessens firm’s financial constraints—phenomenon frequently measured by investment-cash flow sensitivity in the sample of all non-financial companies listed during 1999–2002 on the Polish stock exchange. I find that firms with a banker on the board rely more heavily on bank loans than on internal capital in their investment activities. In contrast, firms with no banker on the board finance to a larger extent their investment with internal capital than with credit. However, firms with the bank-lender representation on the board are almost as much financially constrained as firms without a bank-lender representative on the board. Hence, the presence of bankers on boards is not associated with bank monitoring. They rather promote their employer’s business. The findings show that investment of firms with a banker on the board is less sensitive to cash flow than investment of firms without bank representatives on the board. This result suggests that bankers on the board provide financial expertise that help those firm to reduce financial constraints.     

The changing role of the supervisory board chairman: the case of the Netherlands (1997–2007)

Over the last ten years, the corporate governance context in most Western countries has changed as a result of irregularities, increased regulation, heightened societal expectations and shareholder activism. This paper examines the impact of the changing context on the role of chairmen of supervisory boards in the Netherlands. Based on a combination of thirty semi-structured interviews with board members of leading Dutch corporations and secondary data on the position of supervisory board chairmen at the top-100 listed firms in the Netherlands, the study reveals that board chairmen have become increasingly involved in both their control and service roles. While the demographics (i.e., age, tenure, gender and nationality) of chairmen have hardly changed over the last decade, chairmen are spending considerably more time on boards and committees, have reduced the number of board interlocks and have become more active on the forefront of the corporate governance discussion. The paper highlights several implications for scholars and practitioners.     

The involvement of board of directors and institutional investors in investing in transition economies: An agency theory approach

We investigate the influence of the composition of the board of directors and stock ownership patterns on the decision to enter markets in Central and Eastern Europe. Our findings suggest that board composition alone does not influence the entry decision while firms with less concentrated stock ownership were more likely to enter these developing markets. We also found that while better performing firms were attracted to opportunities in Central and Eastern Europe, firms with poor prior performance and outside dominated boards were also more likely to enter these markets.     

The challenge of board composition: Effects of board resource variety and faultlines on the degree of a firm’s international activity

This study explores the relationship between diversity in board composition and the degree of a firm's international activity. Specifically, we posit that board resource variety has a positive relationship with the international activity of the firm and that the strength of board faultlines moderates this relationship. Using data collected from Spanish public companies over the period 2005 to 2010, our analysis shows strong support for our hypotheses. Our work contributes to the literature on board's diversity by demonstrating that board resource variety should be captured by considering “the director profile” rather than any single attribute and that this type of variety can engender subgroups that weakens its benefits. Therefore, our results have implications for the strategic management challenge international firms face when they put together their boards. A corporate board needs to structure itself in such a way as to benefit from the wealth of the variety of its resources, but without succumbing to the risks posed by conflicts between subgroups arising from the presence of faultlines.     

Firm size and board diversity

This study seeks to understand the relation between firm size and supervisory board composition. Specifically, we ask if and how firm size influences occupational and international background diversity in supervisory boards. Relying on resource dependence theory and theories of organizational behavior, we hypothesize that board diversity with respect to directors’ occupational background will increase with firm size, while the relation between firm size and board diversity with respect to directors’ international background will be concave. Using archival data for supervisory board members of 151 German firms listed in the German stock exchange indices DAX, MDAX, SDAX and TecDAX for the business year 2005, we find empirical support for our hypotheses: Both, occupational and international background diversity increase with increasing firm size, but international background diversity does so at decreasing rates.     

How to manage corporate reputation? The effect of enterprise risk management systems and audit committees on corporate reputation

Research on corporate reputation has generally argued that reputational risk, or risk of reputation loss, stems from all company risks. As companies use enterprise risk management (ERM) systems to manage all their risks, we analyse the effect of ERM system quality on corporate reputation. Furthermore, as audit committees are in charge of supervising ERM systems, we analyse the effect of audit committee characteristics (i.e. independence and independent members' knowledge and diligence) on corporate reputation through their effect on ERM system quality. Our results for a sample of listed Spanish firms support consultants’ arguments that ERM system is a useful tool for managing corporate reputation. Our results also show that audit committee independence improves corporate reputation through the ERM system. Finally, our findings also reveal a positive relationship between the average educational level of independent directors of the audit committee and ERM system quality. These results provide evidence that ERM systems are platforms to manage corporate reputations and suggest the importance of the audit committee as a supervisor of ERM system and as guarantor of corporate reputation.     

Connecting the Dots: Do Financial Analysts Help Corporate Boards Improve Corporate Social Responsibility?

This paper presents an examination of the joint impact of board structural elements at firm level and financial analysts as market-level corporate governance (CG) on corporate social responsibility (CSR) performance. Our study contributes to the CG–CSR literature by adopting the bundling approach, a perspective that has recently attracted researchers’ attention as an answer to any heterogeneity and fragmentation in existing findings. It is based on an extensive sample consisting of 7,739 firm-year observations of US firms for the 2006–2015 period. The findings suggest that financial analysts complement the corporate board with more independence, gender diversity and a specialized CSR committee to realize a certain level of CSR performance of a firm. The findings also indicate that analysts substitute for those internal governance factors that are associated with weaker boards – larger sizes and dual-role CEOs. We also draw implications for research and practice from our findings.     

Can you catch two birds with one stone? The impacts of nominating committee composition on board monitoring and resource provision

While it has long been recognized that boards of directors perform two primary functions – monitoring and resource provision – little research has systematically examined the relationship between these two functions in public corporations. Given the growing external emphasis on the monitoring function by investors and advocates of corporate governance reforms, it is important to understand how such an emphasis impacts the resource provision function. In addition to identifying the composition of the nominating committee as a key to understanding the relationship, we propose two mechanisms through which the formation of an independent nominating committee in response to the external emphasis on monitoring leads to a decline in board resource provision. One mechanism is through a decline in information sharing between top managers and the nominating committee in new director selection, which results in a divergence between board capital and the firm's specific resource needs. The other is through decreased trust between the CEO and the board, which results in a less collaborative CEO-board relationship. To alleviate this negative impact that an external emphasis on monitoring has on resource provision, we propose that boards can bring non-CEO executives back onto nominating committees as inside directors. Our theoretical analysis contributes to the understanding of how the composition of the nominating committee influences board monitoring and resource provision, and has important implications for corporate governance research and practices.     

Critical mass and voice: Board gender diversity and financial reporting quality

Based on the notion that a diverse board takes a more balanced perspective and pays greater attention to financial reporting oversight, this paper examines the association between board gender diversity and financial reporting quality. Specifically, we study the enablers that allow women to add value to the monitoring activities in the context of limited affirmative actions to promote women on boards. We provide evidence that increased share of women on boards is associated with improved financial reporting quality proxied by reporting timeliness, earnings management, and auditor opinions. We find that in companies that do not have a sufficient number of women on boards, the critical mass effect can be replaced by the “voice” effect, i.e., it is still possible to improve financial reporting quality by having a woman chair the board.