Effect of the board of directors and the audit committee on firm performance: a panel data analysis

This research examines the relationship between independent directors, the audit committee (AC), and firm performance, taking into account the impact of the chief executive officer’s powers and block shareholders. We use the maximum likelihood estimator, based on agency theory assumptions and cylindered panel data, to examine three models of firm performance. The results show that the independence of the board is reflected clearly by increased economic and equity performance of the firm. However, an AC that is fully independent or meets frequently is associated with lower firm performance. Unlike pension funds, institutional shareholders can be considered an effective control mechanism in the context of France. Our results development includes advanced explanations for market liquidity and shareholders’ portfolios. The study period ends before the European regulation on ACs came into effect in 2008. This allows for an appreciation of soft law in French corporate governance. It also lets us compare the data with the way firms operate their boards one decade later. The evidence provides useful guidelines on the supremacy of soft law in corporate governance and suggests that the composition and functioning of the board of directors should be moderated based on the firms’ context. The specificity of the cylindered panel data helps to better examine the impact of the board and AC’s independence and functioning in French corporate governance structure.     

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.     

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.

Board structures and the establishment of a risk management committee by Malaysian listed firms

The purpose of this study is to examine the association between the establishment of a risk management committee and board structures of Malaysian listed firms. The study predicts that more independent, expert, and diligent boards are likely to establish a stand-alone risk management committee. It employs a cross-sectional analysis of 690 firms listed on the Bursa Malaysia for the financial year ending in 2003. Multiple regression analysis is used to estimate the relationships proposed in the hypotheses. The study finds a strong support for an association between the establishment of a risk management committee and strong board structures. Specifically, the result shows that firms with higher proportions of non-executive directors on boards and firms that separate the positions of chief executive officers and board chairs are likely to set up a stand-alone risk management committee. Firms with greater board expertise and board diligence are also likely to establish a risk management committee. These findings suggest that stronger boards demonstrate their commitment to and awareness of improved internal control environment. Finally, the study also documents a positive and significant association between firm size, complexity of a firm’s operations, and the use of Big Four audit firms with the establishment of a risk management committee.     

The Cadbury Committee recommendations on corporate governance – a review of compliance and performance impacts

In December 1992, the Cadbury Committee published their Code of Best Practice. The recommendations, which largely reflected perceived best practice at the time, included separating the roles of CEO and chairman, having a minimum of three non-executive directors on the board and the formulation of audit committees. The Code also advocated that a more active role be taken by institutional investors in the promotion of good practice in corporate governance. This paper discusses how agency problems may be (partially) resolved by corporate governance, reviews the evidence on compliance with the Cadbury Code and examines the relationship between board structure and firm performance, looking for evidence that the Code has enhanced board performance. While there is no empirical evidence of an association between board structure and firm value, there is some evidence that compliance with the Cadbury recommendations enhances board oversight with respect to the manipulation of accounting numbers and the discipline of the top executive.     

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.     

Comparing corporate governance practices and exit decisions between US and Japanese firms

This study examines how widespread the similarities between US and Japanese corporate governance practices have become. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States—particularly in Securities and Exchange Commission-mandated reforms such as independent audit and compensation committees. Our results suggest that corporate governance differences between Japanese and US firms may be driven, in part, by differences in directors’ recognition of investors’ performance expectations. In particular, results indicate that the exit barriers related to employment influence decision-making for Japanese directors more strongly than they affect US directors’ decisions. Board independence—particularly with respect to audit and compensation committee membership—reduces the height of perceived exit barriers. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States although it does not conclude that the transition is necessarily desirable.     

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.     

The impact of corporate governance on auditor choice: evidence from Germany

Statutory audits are only beneficial if the appropriate audit quality is both provided and perceived by the users of audited financial statements. On the one hand, Big 4 audit firms are commonly viewed as producing high quality audits. On the other hand, regulators complain about the high market share of Big 4 audit firms. In this context, it is of interest to examine the drivers of a Big 4 audit firm selection. Despite extensive prior research, there is still a lack of findings form Continental European countries and on the impact of corporate governance on auditor choice. This paper on hand is intended to fill the related research gap. Thus, our study identifies variables that determine the auditor choice of large German listed companies. Based on a sample of 432 firm-year observations for the period 2010–2014, our logistic regression analysis suggests that the corporate governance structure influences auditor choice significantly. Notably, the annual meeting frequency of the audit committee and the size of the supervisory board are positively associated with the engagement of a Big 4 audit firm. However, the meeting frequency of the supervisory board and the compliance to the German corporate governance code are negatively related to the choice of a Big 4 auditor. Additionally, the proportion of female supervisory board members does not exert a significant impact. The results remain stable when the DAX30 observations, for which statutory audits are exclusively performed by Big 4 audit firms, are excluded. The main contribution of our paper is, that it sheds light on the impact of corporate governance variables not analyzed by prior research, like supervisory board characteristics, deviations from a corporate governance code, or the female quota, in a Continental European setting, and that it mainly indicates a complementary relationship. Despite the peculiarities of the German setting, the two-tier corporate governance system and the low level of investor protection, the findings of our study are not only relevant for Germany, since many other Continental European countries are characterized by a similar environment. The study’s findings are of particular interest for regulators when addressing audit market structure problems.     

The Performance Implications of Ownership-driven Governance Reform

This paper explores the performance impact of recent changes in foreign shareholdings and boardroom reforms in Japan. Empirical research on the impact of reform on the Japanese corporate governance system could provide useful lessons for their European counterparts who are themselves facing similar pressures to reform. We found that although participation of outside directors in strategic decision-making was associated with positive stock returns, the increase in the ratio of outside directors, the separation of the board members and executive officers, and the reduction of board size were not related to firm performance.     

《萨班斯法案》对美国公司董事会影响的分析

2002年度美国出台的《萨班斯法案》全方位地对安然等事件暴露出来的问题作出相应的调整性规定,必将对公司治理产生深切的影响。《萨班斯法案》对审计委员会提出了修正性和提高性要求,本文选择外部董事、女性董事、财务专家、CEO兼任董事会主席、CEO在提名委员会任职等指标进行分析。实证分析结果说明:《萨班斯法案》有效消除了董事会和管理层任人唯亲的现象,董事会的独立性和专业性均有所提高。其实,《萨班斯法案》颁布之前就有加强公司治理的要求,公司治理就有改进的趋势,但《萨班斯法案》关于审计委员会方面的明文规定加速了公司董事会的变化,使得公司治理改革超越了法律的既定要求。     

Board of directors structure and firm financial performance: A qualitative comparative analysis

Previous research about the effects of board structure and process on the firm financial performance is based on conflicting theoretical perspectives, and empirical results, mostly based on regression analysis, are inconclusive. Building from Complexity Theory and configurational analysis, this study offers clarity to inconclusive previous empirical results about the link among several board features and firm financial performance. From a sample of 295 non-financial firms from Southern Europe for the period 2001–2010, and by using fuzzy set qualitative comparative analysis, findings of this study show that firm financial performance depends on a complex configuration of several board features (board size, board independence, leadership structure and board activity) and several corporate characteristics (firm size, firm leverage and firm age). This paper has implications for academics. Despite different theoretical arguments and inconclusive results of the wide empirical literature addressing the effect of board characteristics on the firm performance, building from Complexity Theory this paper adds to our knowledge because it empirically explores under which circumstances different board features should contribute positively or negatively to firm performance. The results of this study have also implications for policy makers and practitioners by providing some useful hints to the controversial relationship between corporate governance and financial performance. In this sense, general corporate governance recommendations must be rethought.     

Audit committee and internal audit and the quality of earnings: empirical evidence from Spanish companies

Corporate scandals and failures such as Enron, WorldCom, etc. were highly catastrophic and had a terrible effect on stakeholders. The pressure of globalisation and the intense competition have lead to organisations encouraging good corporate governance. Organisations have to promote transparency and accountability of financial information. As Gramling et al. (J Account Lit 23:194–244, 2004) argued there are four important mechanisms of corporate governance include boards of directors, audit committees (among others) and internal and external audit functions. However, this paper will focus on the relationship between two corporate governance mechanisms (audit committee and internal audit function). Thus, our purpose is to analyse the relation between characteristics of the audit committee and internal audit function and earnings management measured as abnormal accruals to test the quality of financial statements. We hypothesise that the association between the effectiveness of the audit committee and the presence of an internal audit function and its relationship with this committee would indicate less opportunity for management to manipulate earnings. Using a sample of 108 non-financial Spanish companies that traded on the Madrid Stock Exchange between 2003 and 2006 (432 observations), we have found that the size and number of meetings of the audit committee had a significant negative association with earnings manipulations. Also, our results suggest that a negative relation between having an internal audit function and earnings management.     

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.     

投资机会（IOS）设定下公司内部治理对经营绩效的影响——基于中国上市公司的经验研究

传统的公司治理研究将处于不同组织环境的企业等同对待,造成了研究结论的较大分歧.本文依据投资机会集(IOS)理论,运用我国上市公司的经验证据,在设定投资机会集的条件下,考察了不同成长性的企业其公司治理对经营绩效的影响.研究结果表明:成长性较高的公司,其经营绩效的改善与独立董事比例、高管层的持股比例显著正相关,但与高管层年薪相关关系不显著;成长性较低的公司.其经营绩效的提高与独立董事比例和高管层的持股比例相关关系均不显著,但与高管层年薪存在弱的正相关关系.     

Interlocking directorship across Italian listed companies: evidence from a natural experiment

The financial crisis of 2008 and the introduction of the Interlocking Ban in 2011 (for financial firms) deeply influenced the Italian corporate governance system. The aim of the present study is to investigate to what extent personal ties among the directors of Italian listed companies have changed after these two events. We describe the evolution and dimension of the phenomenon of interlocking directorship (ID) for all the Italian listed companies over the period 1998–2013 using different methodologies. Social network analysis discloses the existence of clusters of companies whose links remain dense after the crisis, while connections to the peripheral units of the system decrease, reducing the overall connectedness. Results reveal that, over the period, there is a reduction in the cumulation ratio which still remains high and mainly due to a high number of directorships for multiple directors. This reduction is more severe after 2008 when both the financial crisis and the Interlocking Ban occur. In disentangling the two effects we observe ID reduction during and after the crisis, also for non-financial firms, confirming the general tendency of a decline in national board interlocking networks.     

机构投资者持股与上市公司违规行为的实证研究

本文采用部分可观测的Bivariate Probit估计方法,对2001年至2009年中国1729家上市公司进行回归检验,发现机构投资者持股比例降低了公司违规行为倾向,同时增加了公司违规行为被稽查的可能性。该结论在控制了机构投资者变量内生性的因素后仍旧稳健。进一步研究表明,相比公司经营违规,机构投资者对信息披露违规倾向的影响更强。另外,相比证券机构投资者,养老保险基金、社保基金、企业年金持股的公司中违规公司比例更低。除此以外,机构投资者对公司违规的抑制与检举作用并不受其它公司治理变量的影响。本文的研究表明中国机构投资者在预防与打击上市公司违规行为方面发挥了重要的作用,并且也为上市公司与监管部门提供了治理和防范企业违规的线索。     

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.     

Corporate social responsibility,board of directors,and firm performance: an analysis of their relationships

This paper aims to contribute to the empirical evidence relating corporate social responsibility (CSR), board composition, and firm performance. Using a sample of Spanish listed firms included in the IBEX 35 over the period 2005–2010 the results show that the percentage of independent directors affect firm CSR activities, and that this effect is moderated by the resources available to the firm (measured by return on assets). Also, the CSR has a mediating role on the relation between the independence of the board of directors and firm value. These results hold for other board characteristics (board size and women as directors).