Abstract

     This study tests the positive effects of empowering leadership (ELSH) under boundary conditions in the hospitality industry. We propose the existence of an interactive process through which ELSH behaviors interact with employees’ personality type to condition their engagement, which in turn influences their extra-role service behavior. We use data from 294 employees and structural equation modeling. The results show that the interaction of ELSH with employees’ independent and interdependent personality is negatively related to their engagement. This decrease in engagement is then reflected in decreased extra-role service behaviors due to the positive relationship between engagement and extra-role service. These findings suggest that self-construal is a significant boundary condition capable of changing the positive relationship between ELSH and engagement to a negative one. Not considering this relationship when establishing a leadership strategy such as ELSH in the hospitality context could render efforts to achieve the goal of high-quality service ineffective.

Introduction

     The battle for customers in the hospitality sector has been intensifying in recent years. The proliferation of digital lodging platforms, such as Airbnb, requires hotels to focus on what makes them unique relative to alternatives: professional service available to guests 24/7 that can adapt to their needs (Huertas-Valdivia et al., 2021). This effort to customize service focuses the industry’s interest on frontline employees’ capability to solve problems with autonomy and adapt their roles to provide personalized service (Jha and Nair, 2008, Zhu et al., 2019). Extra-role service includes a set of proactive employee behaviors, beyond the obligations of employees’ roles, that enable hotels to deliver guests service that aligns with their expectations (Garg and Dhar, 2016, Karatepe, 2015, Karatepe et al., 2013, Kim et al., 2009). Extra-role service is by definition a discretionary employee behavior (Bettencourt and Brown, 1997); that is, it is not specified as an in-role task or linked to formal compensation systems (Garg and Dhar, 2016). This combination (which is essential to being competitive but merely discretionary) justifies the industry’s interest in determining what underlies employees’ intention whether or not to engage in extra-role service (Huertas-Valdivia et al., 2018). Some authors have indicated that employee engagement sets in motion a process of internal motivation that makes employees willing to become involved in extra-role service (e.g., Karatepe, 2013a; Kim and Koo, 2017; Zhu et al., 2019). Achieving more engaged employees has thus been presented as a way to attain extra-role service (Orlowski et al., 2021).

Conclusions

     Research is currently identifying ELSH as a style that can solve some problems in the hospitality work environment. Our study tests the relationships among ELSH, engagement, and extra-role service under boundary conditions present in the work environment (the employee’s type of self-construal). Our analysis provides evidence of an interactive process in which leadership style and the employee’s personality shapes hotel service. Drawing on SCT, we find that the employee’s personality type acts as a boundary condition that determines the results of the process by which ELSH influences hotel employees’ engagement. We thus confirm that the interaction of ELSH with independent and interdependent employees’ self-construal becomes an obstacle to achieving engaged employees and, by extension, to reaping the benefits of ELSH’s positive influence on extra-role service. Our study ultimately warns of the need to consider employees’ personality profile before establishing ELSH as the means to promote increased engagement and extra-role service behaviors in hotels.

Abstract

     This study proposes a novel theoretical model on the negative effect of the perceived cognitive threat and fear of COVID-19 on full board hotel booking intentions, which includes the moderating effects of perceived coping efficacy and present-hedonism orientation. The model was tested with a representative online sample (N = 400) of the Spanish population older than 35 years. The results confirmed negative effects of threat and fear of COVID-19 on hotel booking intentions, as well as a negative moderating effect of perceived coping efficacy on the influence of fear of COVID-19. However, coping efficacy did not moderate the effect of perceived cognitive threat on hotel booking intentions. The present-hedonism orientation positively affected full board hotel booking intentions, but did not, however, reduce the negative effect of threat or fear on those intentions. The findings provide new insights for hospitality managers that can contribute to accelerate the recovery of the hospitality industry.

Introduction

     Health crises, such as outbreaks generated by infectious diseases, can have a significant negative impact on tourism (Pine and McKercher, 2004, Sánchez-Cañizares et al., 2020). In comparison to other pandemics, the SARS-CoV-2 or COVID-19 pandemic has had unprecedented consequences on the tourism industry across the globe (Kock et al., 2020, Pillai et al., 2021). Health measures taken by governments to minimize the spread of the virus, such as lockdowns or quarantining, or people’s decisions to avoid public spaces for fear of contagion, have had unfortunate impacts on the hospitality industry (Gursoy and Chi., 2020). The hospitality sector has been globally one of the most impacted by the COVID-19 pandemic (Rather, 2021, Sánchez-Cañizares et al., 2020, Yu et al., 2020). The present study focuses on Spain, which was the world’s second most-visited nation in the year before the pandemic started and is one of the European countries that has been strongly affected by the pandemic in terms of number of contagions and mortality rate (Hernández-López et al., 2021). Also, by 2020, the profitability of the Spanish hospitality industry had decreased 66% in comparison to the previous year (Statista, 2020). According to EY (2020), hospitality is one of the most important sectors in Spain due to its contribution to the country’s economy, representing 6.2% of the gross domestic product, which is a higher proportion than in most European countries. All-inclusive full board hotels are particularly popular in Spain. In 2019, almost 84 million foreign tourists visiting Spain stayed in a full board hotel (INE, 2020). These hotels are mainly used by leisure travelers for vacations, and they often include entertainment activities.

Results

     The correlations of all variables are shown in Table 2. The results confirmed a significant negative relationship between perceived threat from COVID-19 and booking intention (r = −0.44, p < .01), and a significant negative relationship between perceived fear of COVID-19 and booking intention (r = −0.33, p < .01). The results also confirmed a significant positive relationship between fear and threat (r = 0.57, p < .01), a significant positive relationship between perceived coping efficacy and booking intention (r = 0.18, p < .01), and a significant positive relationship between present-hedonism orientation and booking intention (r = 0.25, p < .01).

Abstract

     We investigate the relationship between board diversity (relation-oriented diversity, task-oriented diversity, and overall board diversity) and financial statement comparability. We find that diverse boards are positively associated with financial statement comparability, suggesting that board diversity improves governance mechanisms by alleviating agency conflicts, leading to higher comparability than homogenous boards. We also find that institutional ownership positively affects the association between board diversity and financial statement comparability. Furthermore, the positive effect of diversity, institutional ownership, and comparability are more pronounced in non-state-owned firms and non-crisis periods. Our findings remain consistent with a battery of econometric techniques and measures of comparability. This study provides new insights regarding the role of boardroom diversity in shaping the qualitative aspect of financial reporting, i.e., financial statement comparability.

Introduction

     Corporate boards influence all the organizational outcomes because of the strategic nature of their decisions. The idea of diversity has gained attention over the last two decades after the extraordinary governance failures and increasing demand from investors and regulators for improved monitoring (Ararat et al., 2015). Since then, the opportunities and challenges presented by board diversity have long fascinated the researchers. Diversity has various facets, such as age, gender, technical expertise, and experience of running a business. Earlier studies suggest that diversity affects firms in many ways. For instance, board diversity has a significant effect on a firm’s stock price crash risk (Jebran et al., 2020), cash holding (Atif et al., 2019), asset prices (Li and Zeng, 2019), firm performance (Aggarwal et al., 2019; Carter et al., 2010), corporate investment (Harjoto et al., 2018), financial frauds (Xu et al., 2018), earnings management (Bilal et al., 2018; Hoang et al., 2017; Labelle et al., 2010; Park & Shin, 2004), corporate social responsibility (Harjoto et al., 2015) and corporate risk-taking (Serfling, 2014), etc. All these prior research have explored the effect of board diversity on various corporate dimensions, including earnings management and financial fraud (Bilal et al., 2018; Hoang et al., 2017; Labelle et al., 2010; Park & Shin, 2004; Xu et al., 2018). However, these studies ignored the qualitative facets of financial reporting, i.e., financial statement comparability (comparability hereafter). Using a comprehensive measure of diversity includes relation diversity which comprises demographic characteristics such as gender and age; task diversity which contains job-related attributes such as tenure, education, and expertise; and overall diversity to study the impact of diversity on comparability.

Conclusion

     The study investigates the effect of board diversity on financial statement comparability in China settings. We divide board diversity characteristics into three categories: relation-oriented diversity (i.e., gender and age), task-oriented diversity (i.e., experience, education, and tenure), and overall board diversity (sum of task and relation diversity). We find a positive relationship between board diversity and financial statements comparability. The magnitude is significant, both statistically and economically. These findings suggest that greater board diversity improves the monitoring of managerial resources, reduces agency conflict, and result in higher comparability. The findings also exhibit collective knowledge, increase cognitive abilities, improve board functionality, improve the monitoring of managerial activities and lead to higher comparability. We also document that institutional ownership positively affects the relationship between board diversity and comparability. The monitoring effect of institutional investors boosts the effect of board diversity on comparability. The results reveal that diversity reduces incentives for an opaque information environment, enhances monitoring of managerial activities, and increases transparency resulting in higher comparability.

Abstract

     Although franchise and management contracts constitute the dominant way of organizing business-to-business relationships within hotel chains, no study has compared their relative performance. This paper aims to explain their differences and assess their impact on online scores, currently a key performance indicator in the hotel industry. We argue that franchises are less effective than management contracts for operating upscale hotels due to the relative advantages that the latter have in transferring and enforcing tacit knowledge, typically embedded in skilled staff and very relevant in such quality-tier hotels. Conversely, franchising is better for large hotels because, first, its incentive structure better addresses managerial shirking (typically more severe as hotel size increases) and, second, it offers advantages when the standardization of business procedures is key to success (as is true for large establishments). Our empirical findings broadly support these arguments in a dataset of 467 Spanish hotels, also providing evidence that no single organizational solution fits all situations.

Introduction

     Like the tourism industry, the hotel sector has grown significantly in recent decades. According to the World Tourism Organization, international tourist arrivals rose worldwide from 686 million in 2000 to 1461 million in 2019.1 This growth has facilitated hotel firm specialization, driving companies to focus on fewer supply chain stages (Stigler, 1951). A clear example is the move by the world’s leading hotel groups to divest properties (i.e., real estate business) and specialize in hotel operations and brand management (Blal & Bianchi, 2019).

     This tendency has resulted in the so-called asset-light and fee-oriented (ALFO) strategy (Li & Singal, 2019; Sohn, Tang and Jang, 2013, Sohn, Tang and Jang, 2014), which relies critically on the development of effective business-to-business relationships between hoteliers. Started years ago by US market leaders, such as Marriot and Hilton, the ALFO strategy is currently a dominant industry trend (Balyozyan, Perret, & Martin, 2017; Mercier, 2020). Its aim is to grow by developing brands and business concepts and then incorporating affiliated hotels that pay a fee for their use. However, this affiliation means that several independent firms must cooperate by contributing the assets that are necessary to offer a full lodging service.

Conclusion, managerial implications, and limitations

     In sum, this work shows that differences in performance exist between the two main business-to-business organizational solutions that constitute the ALFO strategy, so one size does not fit all (i.e., solutions are contingent on organizational problems). Management contracts prove more effective than franchising in upscale hotels. We argue that this is because transferring tacit knowledge within the organization (as management contracts do) is less costly than transferring it between companies (as franchising does). Conversely, we also find that franchise agreements outperform management contracts for operating large hotels in terms of online scores, arguably because they provide high-powered incentives to prevent managerial shirking and facilitate the standardization and codification of business procedures.

     The theoretical implication of this work is that to explain the choice of the business-to-business relationship, it is necessary to understand not only the problem we want to solve (the replication of a business concept without large capital investments) but also the comparative advantages of the organizational solutions applied (i.e., management contract vs. franchising). Hua et al. (2020) have recently shown that management contracts provide value, and we qualify this by stating that part of this added value is because they guarantee the transfer of tacit knowledge better than a franchise contract does. Overall, a deeper analysis of governance choice is necessary to disentangle the still fuzzy category of so-called hybrid governance solutions (Williamson, 1991). Studies comparing extreme governance mechanisms (i.e., hierarchy and market) with specific hybrid solutions are relatively frequent. However, the delimitation of hybrids and their differences have been much less studied (Cuypers et al., 2021). In this sense, these results help advance understanding of the two leading hybrid solutions of the hotel industry (ALFO).

Corporate governance is an important determinant of corporate performance. Poor corporate governance can damage the interests of shareholders, and may lead to business collapse. This paper expands the literature on credit risk management by assessing the effectiveness of aspects of corporate governance for predicting financial distress in a dynamic discrete-time survival analysis model. It is a comprehensive, up-to-date and thorough study, which uses a large range of corporate governance measures, financial ratios and macroeconomic variables in a panel data structure over a 17-year period. Furthermore, the paper addresses the relationship between government ownership and the risk of financial distress in China. The results suggest that although corporate governance alone is not sufficient to accurately predict financial distress, it can add to the predictive power of financial ratios and macroeconomic factors. In addition, the model provides insights into the role of state ownership, independent directors, institutional investors and some personal characteristics of the Chair of the board. Implications are made regarding them and the debt and bankruptcy problem in China and Asia.

Introduction

Predicting corporate bankruptcy or financial distress has been a vibrant topic in banking, business and finance because of its importance to creditors such as banks. For corporate debtors, management quality is a key factor in their performance. A firm’s bankruptcy or financial performance will affect investments and debt repayments, and therefore needs to be accurately predicted. It is not surprising that this topic has received a lot of attention in academic and practical work. Risk-taking decisions of creditors will depend on their ability to analyze or predict the risk involved. There is a vast body of literature on bankruptcy prediction models that can be classified into accounting based models using financial ratios (e.g. Altman (1968) and Bonfim (2009)) and market based models using share prices (e.g. Milne (2014) and Campbell et al. (2008)) respectively. Corporate governance measures are less common in bankruptcy prediction literature, as they do not represent hard information such as financial ratios, but rather soft information, although behaviors such as default on debt, financial distress and bankruptcy have been found to be linked to corporate governance (see e.g. Daily et al. (2003)). The research which aims to understand the role of corporate governance and subsequent company performance is summarized in the next section of this paper.

1- Introduction

2- Institutional background

3- Literature review and hypotheses development

4- Research design and data

5- Empirical results

6- Conclusion

References

Abstract

The purpose of this study is to examine whether the quality of corporate governance has an impact on target price accuracy. We explore the relationship between target price accuracy and ownership structure, board composition, and disclosure using a sample of 17,334 target price observations in the Taiwan Stock Exchange between 2007 and 2016. We find that strong corporate governance improves target price accuracy. We further show that firms with better corporate governance experience a stronger market reaction to their target price announcements.

Introduction

A target price forecast reflects a security analyst’s estimate of a firm’s stock price level over the forecast horizon, usually twelve months. It provides easy-to-interpret and direct investment advice. When making investment decisions, investors consider target price forecasts as one of the most important indicators. Brav and Lehavy (2003) suggest that target prices provide investors with analysts’ clear and precise statements on the magnitude of the company’s expected value. Asquith, Mikhail, and Au (2005) find that analyst reports play an important role in interpreting information from various sources and document strong market reactions to analyst reports. Despite the importance of target price, the literature documents that forecasted target price is usually optimistically biased; and there is an unsettled debate on the limited accuracy of target prices. Asquith et al. (2005) and Bradshaw, Brown, and Huang (2013) find that only around 50% of target prices are achieved within the following twelve months in the US stock markets. Bonini, Zanetti, Bianchini, and Salvi (2010) find a target price accuracy of 33.1% in the Italian stock markets. Kerl (2011) finds an accuracy of 56.5% in the German stock markets. There are relatively few studies that examine what determines target price accuracy, compared to the extensive literature on earnings forecasts (Bradshaw, 2004; Bradshaw et al., 2013). Previous research examined some of the factors that influence target price accuracy. For example, factors on analyst forecasting skills include the number of reports published by the analyst (Bonini et al., 2010), the collective reputation of analysts (Bonini et al., 2010), and past forecast accuracy (Bradshaw et al., 2013). The literature also examines factors relating to company risks, such as, company size (Bonini et al., 2010; Demirakos, Strong, & Walker, 2010; Kerl, 2011), and stock price volatility (Kerl, 2011). The above studies neglect the effect of a fundamental determinant of target price accuracy, namely corporate governance. Corporate governance is the arrangement of checks and balances. It minimizes and manages the conflicting interests between insiders and external shareholders and stakeholders. Specifically, corporate governance structure affects the accounting disclosure quality, aids users in assessing the quality of information, and guides analysts to more accurately forecast future performance. The accuracy of the target price ultimately relies on the quality of the information disclosed by the firm.

In this paper we examine the relation between ownership structure and overinvestment decisions by Chinese state owned enterprises (SOEs). We hypothesize that state owners, the largest block holders, are more committed to pursue their own sociopolitical agenda than maximizing wealth of its shareholders and show that the relation between state ownership and overinvestment is positive. We also hypothesize that managerial owners, who too receive non-negotiable shares, would discourage overinvestment lest it should inhibit the firm’s ability to pay dividends. Consistent with this hypothesis, we find a negative relation between management ownership and overinvestment. Conversely, our results show that the state ownership has a negative impact while managerial ownership has a positive effect on underinvestment decisions.

Introduction

Overinvestment occurs when the management of a firm invests its free cash flows in negative NPV projects to maximize its personal benefits (“empire building”) instead of paying dividends or repurchasing stocks. The higher the level of free cash flows at the disposal of the managers, the greater is their incentive to over invest, and therefore, the larger is the firm’s value destruction (Jensen, 1986). Consistent with this expectation, Titman et al. (2004, 2010) find that the negative association between capital investments and future stock returns is stronger in firms with higher free cash flow and lower leverage.1 They interpret the evidence as investors’ under-reaction to the over investment behavior by managers who have incentives to put the best spin on the firm’s investment opportunities as well as on its overall business prospects when making high capital investments. If investors fail to recognize the over investment behavior, or are fooled by the rosy picture painted by managers, the subsequent-period stock returns of firms that make excessive investments may deteriorate with lower than expected performance resulting from overinvestment. Considering that the conflict of interests between owners and managers is at the root of value-reducing overinvestment problems, a good corporate governance system is expected to employ measures that would mitigate this conflict by aligning the interests of the affected parties. Ownerships by insiders or blockholders are often included in literature as attributes of a good governance system. Empirical work generally suggests that the relation between insider ownership and the firm value is positive at least at the lower level (Morck et al., 1988; McConnell and Servaes, 1990; Hadlock, 1998; Gedajlovic and Shapiro, 1998; Claessens and Djankov, 1999; Mitton, 2002; Li et al., 2007). Consistent with the literature, researchers report that the relation between managerial ownership and overinvestment is, to a large extent, negative. For example, Cho (1998) shows that the level of investment rises as insider ownership increases up to 7%, decreases as insider ownership rises from 7% to 38%, and remains unaffected by insider ownership beyond 38%. Hadlock (1998) finds an inverted U-shaped relationship which implies that investment efficiency exists when insider ownership is at a lower level, but overinvestment abounds when high insider ownership gives rise to entrenchment. Stiglitz (1985) points out that a higher concentration of ownership is likely to be associated with more control over managerial behavior, given the decrease in monitoring incentives when there is no controlling shareholder. Although a large body of empirical work finds that concentrated ownership with large blockholders leads to better monitoring and alignment of interests between the controlling and minority shareholders (for example, Shleifer and Vishny, 1986, 1997; Kaplan and Minton, 1994; Gomes, 2000; and Lins (2003), the opposing viewpoint is that an extremely high ownership concentration may not necessarily indicate better shareholder protections, but might instead signify exploitation by entrenched controlling shareholders of minority shareholders (Morck et al., 2000; Claessens et al., 2002; Fan and Wong, 2002; Ducassy and Guyot, 2017; La Porta et al., 1999), and La Porta et al. (2002) document that the concentrated ownership is negatively related to the interests of minority shareholders in countries that fail to protect their rights.

Introduction

Extant literature shows that corporate governance explains 1997’s Asian financial crisis. Johnson et al. (2000) show that governance measures and ownership structures explain the collapse of the currencies and stock markets in the 1997 crisis, and that the effect of these variables was stronger than the standard macroeconomic variables. Mitton (2002) extends this idea to the firms’ level, and shows that ownerships concentration, disclosures’ quality and diversification affected the firms’ performance in the crisis. Lemmon and Lins (2003) show that cash flow rights leverage (defined as control rights divided by cash flow rights) negatively affected firms’ performance during the 1997 Asian crisis. The effect was stronger when managerial ownership was present. Thus, managerial ownership can be used as a vehicle for majority shareholders to expropriate minority shareholders. Even so, corporate governance seems to have an impact on trading strategies. A trading strategy based on corporate governance seems to produce abnormal profits. For example, using the decade of the 1990s, Gompers et al. (2003) show that a trading strategy consisting of buying stock in companies that are in the top 10 per cent of the governance index and selling stock in companies that form the lowest 10 per cent of the governance index would have yielded an abnormal return of 8.5 per cent. The year 2000 witnessed a growing awareness of good corporate governance (Bebchuk et al., 2013). Markets also seemed to learn this and incorporate this information into prices. The efficient market hypothesis predicts that trading based on widely held information will not yield abnormal profits. Consistent with this notion, Bebchuk et al. (2013) show that the profitability of a trading strategy based on governance, which produced abnormal profits in the 1990s (Gompers et al., 2003), disappears during the next decade. They attribute the disappearance to the governance learning process during this period. In 2008, the markets experienced another financial crisis, which was the subprime crisis. This event, along with the more recent developments in corporate governance during the 2000s, motivated our study. Specifically, our research question is, “Does the significant effect of the ownerships structure on a firm’s performance, as observed in the 1997 financial crisis, disappear during the 2008 financial crisis?” We hypothesize that the significant effect disappeared in the 2008 financial crisis. The use of the 2008 subprime crisis provides an advantage. As suggested by Lemmon and Lins (2003), the use of crisis periods may be appropriate when looking to disentangle endogeneity problems that may arise as ownership structures, investment opportunities and firms’ values may all be jointly determined (Demsetz and Lehn, 1985; Akbar et al., 2016). Akbar et al. (2016) show that after controlling for endogeneity problems, previous findings of positive associations between corporate governance and performance disappear. The 1997 crisis hit the Asian countries suddenly, so the crisis was exogenous to the firms. They have little or probably no opportunity to adjust to the crisis in the short-term.

1. Introduction

2. Academic spin off

3. The role of corporate governance structure within ASO

4. Research Model: methodology, sample and variables

5. Results: descriptive statistics and correlations

6. Conclusions

References

This paper studies the relationship between the features of managerial board, ownership structure and firm performance of a particular type of new technology ventures: the academic spin offs. These are mainly small and medium firms, focused on high technology, research and innovation, that involve private and public actors in their ownership structure. Literature shows that these firms play an important role for economic growth of a country, however in Italy a high degree of academic spin offs doesn’t survive for a long time. Managerial competences, corporate governance attributes and financial structure could explain these phenomenon. This study observes a sample of Italian academic spin offs established in the last five years: primary data on corporate governance, industry, ownership structure, financial aspects are taken from the National Register of Firms, University (parent organization) and company website. Statistics show relevant relations between firm performance and corporate governance attributes and confirmed, after the start-up, the inefficiency of the board of directors in which there is an overlapping between academic-founder and manager, suggesting greater openness to outside expertise.

Introduction

Composition, managerial style and competences are important elements for the efficiency of managerial board and for the firm performance. During the last decade, research on corporate governance shown that the real problem, for a good governance practice, is linked more to the access to critical resources that to agency conflicts between ownership and management (Van Gils, 2005; Roe 1994). Strategic and managerial competences of CEO, financial resources and partnerships are strategic for the development of the firms (James, 1999; Bianco and Casavola, 1999), especially in those contexts where competitiveness is based upon knowledge and innovation and where capital markets are not very developed and not very dynamics. In knowledge-intensive sectors, also attribute of corporate governance may represent critical resources, able to influence the firm performance and its survival (Renders et al, 2010). For this reason designing the structures of governance, the primary goal becomes searching for more effective solutions to engage stakeholder who bring expertise, critical know-how, financial resources and strategic relations (Rajan and Zingales, 2000). Small and medium enterprises are the most representative firm model in Italy, where the corporate governance structure presents a high degree of ownership concentration, CEO duality and overlapping between manager and founder. These features reduce the agency problems, but bring out the need to have extensive knowledge and expertise, in order to have a rapid, efficient and flexible decision-making process, considering the actual challenges of enterprises, especially within dynamic sectors. Based on resource dependency theory (Pfeffer and Salancik, 1978), this study analyzes a particular type of SME: the academic spin offs. These are technology or research-based ventures, that involve private and public actors in their ownership structure, where there is often an overlap between the roles of founder, manager and academic researcher, who continues to carry out its research activities within the university, reconciling with great difficulty the managerial duties.

Bank distress can induce systemic effects (Stulz, 2015): banks played a central role in the 2007-2009 global financial crisis, too often failing in their mission to allocate resources efficiently and attenuate systemic risk[1]. This crisis, along with the consequences of the Eurozone crisis, brought about a surge in empirical research investigating its causes and effects, including the role of ownership and shareholding structure[2]. Indeed, scholars generally agree that the recession was partly due the shortcomings of the banking sector, and that banks’ excessive risk-taking before the crisis is related to their respective corporate governance mechanisms (Brunnermeier, 2009; De Young and Torna, 2013). Furthermore, Peni and Va¨ha¨maa (2012) document that US bank holdings with better corporate governance practices performed better during the 2007-2009 financial crisis. In support, Berger et al. (2016) provide evidence that, during the downturn in the USA, banks’ ownership structures play a substantial role in explaining the likelihood of bank failure: failure dramatically increases with the shareholding by lower-level managers, due to their moral hazard incentives. In the light of this framework, this paper aims to use new data and methods to reconsider two particular pitfalls present in the literature, both extensively reported in Section 2: the impact of ownership concentration and its nature on bank performance, with a special consideration of the channel of banks’ technical efficiency. The literature mainly focuses on the impact of the nature of the ultimate shareholders and their concentration (dispersed vs concentrated) by adopting dummy variables related to the ownership structure. Against this background, the present paper provides further insights that contribute to the literature in three significant ways. First, this paper is the first to study how different types of shareholders and ownership concentrations affect banks’ profitability, technical efficiency and risk aptitude, using continuous variables that precisely and extensively express the participation of each type of shareholder (government institutions, banks, institutional investors, industrial companies, families and managers). This empirical strategy enables the authors to capture the marginal effect of each type of shareholder on bank performance more accurately than with qualitative analysis; it also clarifies the interaction effect between ownership type and concentration.

This paper investigates the impact of business group ownership structure on the quality of earnings reports using data from South Korea. Business groups are dominant players, not only in emerging markets but also in Europe and Japan.1 The same is also true in North Korea, where the assets of the 30 largest business groups were 26.1% larger than the Korean GDP and comprised 95.2% of the Korean GDP in 2011. One of the typical characteristics of group firms is that members within a firm mutually share the ties of both ownership and business operations, which gives rise to an agency conflict between controlling and minority shareholders (Yang et al. 2013; Claessens et al. 2006). Hence, the ownership structure of business groups could affect the quality of financial reports. Theoretical studies provide two competing predictions about the impact of the ownership structure on the quality of financial reporting. On the one hand, the entrenchment effect hypothesis predicts that ownership concentration creates incentives for controlling shareholders to expropriate private benefits from the firm at the cost of minority shareholders. As a result, controlling shareholders report lower earnigs quality reports because they have greater incentives to influence earnings for their private benefit (e.g., Wang 2006; Fama and Jensen 1983; Morck et al. 1988; Shleifer and Vishny 1997). Several empirical studies provide evidence supporting the entrenchment effect hypothesis (e.g., Li and Zaiats 2017; Gopalan and Jayaraman 2012; Fan and Wong 2002; Yang et al. 2013). Based on the entrenchment effect hypothesis, group-controlling owners (family, in most cases) allow managers in business groups report lower earnings quality than those in nongroups because the complex organizational structure and self-dealing internal market in group firms may create private benefit incentives for controlling owners to do so. Conversely, some studies predict that group-controlling owners will abstain from extracting private benefit from the firm at the cost of minority shareholders to build a longterm reputation, maximize firm value and impose fewer contractual constraints on the firm (Jensen and Meckling 1976). This suggests that group firms’ owners are expected to have a strong incentive to protect their investment and reputation by actively monitoring managers’ opportunistic attempts to influence earnings. Empirical studies by War- field et al. (1995), Wang (2006), and Jung and Kwon (2002) document evidence supporting this prediction. Overall, two competing theories of the impact of business group ownership structure on earnings quality reporting raise an empirical question. Using a large sample of firms listed in the South Korean stock exchange over a period from 1993 to 2007, we investigated the impact of the business group ownership structure on earnings quality reporting. We further investigated the impact of group firm characteristics (disparity in ownership between cash flow rights and control rights in group firms and family ownership in group firms) on earnings quality reporting.

The internal audit function has become a central part of corporate governance (Carcello, Hermanson, & Raghunandan, 2005; Goodwin, 2004; Paape, Scheffe, & Snoep, 2003; Sarens, 2009). Past accounting scandals, such as Enron, Parmalat, Ahold, and Lehman Brothers, have emphasized the role of the internal audit as a crucial corporate function. It has been argued that effective internal audits might have helped these firms to avoid such scandals (Arena & Azzone, 2007; Lenz & Sarens, 2012). While the internal audit function provides significant benefits to organizations in terms of improving governance processes (The Institute of Internal Auditors [IIA], 1999; Coram, Ferguson, & Moroney, 2008), detecting fraud (IIA, 1999; Coram et al., 2008; Ege, 2015), and reducing audit fees (Abbott, Parker, & Peters, 2012; Coram et al., 2008; Felix, Gramling, & Maletta, 2001; IIA, 1999; Prawitt, Sharp, & Wood, 2011), it seems that less than half of firms voluntarily choose to use internal audit. There is a nascent literature—known as literature on the determinants of the internal audit—that explores the reasons for such behavior (Goodwin‐Stewart & Kent, 2006). The existing literature has shown that the use of internal audit is associated with factors such as total assets, risk management committees, risk managers, the finance industry (including banks, credit unions, and insurance companies), audit committees, and independent board chairs (Goodwin‐Stewart & Kent, 2006). Meanwhile, little is known about the effects of the ownership structure of firms on the use of internal audit. This can be considered a significant research gap, given that prior research has indicated ownership structure to be a central factor in explaining corporate behavior in general (Burkart, Gromb, & Panunzi, 1997; Desender, Aguilera, Crespi, & García‐Cestona, 2013; Prevost, Rao, & Hossain, 2002; Shleifer & Vishny, 1997; Thomsen & Pedersen, 2000). This paper contributes to the existing literature by addressing this research gap. Specifically, we investigate how different aspects of ownership structure seem to affect the voluntary use of internal audit. In this study, using internal audit means a firm establishing its own internal audit function or purchasing internal audit services from an external service provider. The analysis of the paper is based on data from 107 Finnish firms listed on NASDAQ OMX Helsinki. The firms listed on the exchange provide a meaningful sample for the purpose of this research, since the use of internal audit is voluntary in Finland. In addition, firms listed on the exchange must announce a corporate governance statement and define the organization of their internal audit or explain if they have not established an internal audit (Securities Market Association, 2015). In contrast, firms that are listed, for example, on the New York Stock Exchange are mandated to arrange internal audit activities no later than the first anniversary of the company’s listing date (New York Stock Exchange, 2016).