Abstract

Exploiting the global financial crisis of 2007–08 as an exogenous shock that resulted in a significant decline in the ownership of foreign institutional investors (FIIs) in the Indian equity market, we find evidence of a causal link between FIIs’ ownership and different dimensions of board monitoring. Specifically, the empirical results suggest that higher FIIs ownership leads to lower board size, busyness, network size, CEO power, CEO pay, and improved board diligence. However, we also document a negative link between FIIs’ ownership and board independence, indicating that FIIs do not view independent directors as effective monitors. In terms of implications, our results suggest that improved board monitoring, induced by higher FIIs’ ownership, leads to higher firm valuation and innovation activities.

Introduction

Although boards are recognized as a powerful internal corporate governance mechanism, their effectiveness can vary significantly (Adams et al., 2010, Tung, 2011).1 This has spurred research into the underlying causes and strategies for enhancing board effectiveness. Implementing effective internal corporate governance mechanisms that enhance board effectiveness is associated with reducing information asymmetry and agency risks (Jensen and Meckling, 1976, Renders et al., 2010). Existing literature provides support to this conjecture (e.g., Brick and Chidambaran (2010) and Conheady et al. (2015)) by showing a positive association between board monitoring, its effectiveness, and firm value.2

Our study adds to this growing area of literature by examining the influence of foreign institutional investors (FIIs) as a source of external corporate governance mechanism on the internal corporate governance mechanism, namely board effectiveness. Gillan and Starks (2003) offer a theoretical argument that growth in FIIs’ ownership should result in improved board monitoring and overall governance of the host firm.3 The literature highlights the role of FIIs in shaping corporate governance due to their substantial ownership in firms. FIIs are able to monitor board and management activities through voting rights and incentives via cash-flow rights. For instance, Bena et al., 2017, Ferreira and Matos, 2008, and Aggarwal et al. (2011) show that FIIs’ monitoring efforts are primarily directed toward enhancing long-term firm performance, demonstrating that FIIs can curb managers’ incentives to overinvest and improve governance, particularly in countries with weak shareholder protection. FIIs act as independent monitors, being non-domestic investors with limited ties to the host firms, thereby reducing agency costs and improving board monitoring quality (Gillan and Starks, 2003, Tsang et al., 2019). They are also more likely to exit investments in firms with subpar governance (Leuz et al., 2009). FIIs’ independence from local political pressure allows them to perform arms-length monitoring and resist decisions that do not maximize shareholder value. Moreover, their deep understanding of global corporate governance practices, experience, demand for information disclosure, and superior monitoring technologies empower them to foster better governance practices and board monitoring (Grinblatt & Keloharju, 2000). Unsurprisingly, anecdotal evidence suggests that FIIs influence board monitoring by removing directors whose decisions do not maximize their wealth and expropriate minority shareholders.4

Conclusion

One of the key trends in the global financial market during the financial crisis of 2007–08 was the “flight of capital” from emerging markets to developed economies. India, one of the largest emerging economies, also witnessed a substantial outflow of foreign capital in the aftermath of the crisis. From an empirical identification point of view, this crisis represents an unexpected negative shock to FIIs’ ownership in India, making it an ideal set-up to investigate the role of FIIs in influencing the monitoring role of boards. In this study, we focus on the four years pre-crisis and post-crisis beginning in 2008 and use different proxies of board monitoring to evaluate the impact of FIIs on the board monitoring of the firms in which they invest.

The literature on corporate governance notes that FIIs, being informed and sophisticated investors, have the incentive and ability to improve board monitoring. Our study adds to this literature by providing causal evidence of FIIs’ influential role in enhancing the effectiveness of board monitoring. Consistent with economic arguments, the results show that firms with higher FIIs’ ownership are associated with lower board size, busyness, network size, CEO power, CEO pay, and higher board diligence. Interestingly, we also find that FIIs prefer lower board independence in India. However, our result on board independence is counter-intuitive but not surprising, given the empirical evidence that managers in emerging markets may appoint directors independent from the regulators’ point of view. However, they are still connected and sympathetic to the existing management. We also find that FIIs improve the performance of the firms through their improved board monitoring role. Specifically, we find that the enhanced board monitoring by FIIs improves both firm value and corporate innovation measures.

Abstract

Maternal mortality data and review are important indicators of the effectiveness of maternity healthcare systems and an impetus for action. Recently, a rising incidence of maternal mortality in high income countries has been reported. Various publications have raised concern about data collection methods at country level, as this usually relies mainly on national vital statistics. It is therefore essential that the collected data are complete and accurate and conform to international definitions and disease classification. Accurate data and review can only be truly available when an Enhanced Obstetric Surveillance System is in place. EBCOG calls for action by national societies to work closely with their respective ministries of health to ensure that high quality surveillance systems are in place.

Introduction

The death of a woman during pregnancy, childbirth or postpartum is a devastating outcome for any pregnancy and the maternal mortality rate serves as an important reflection of the maternity healthcare standards provided. In most high-income countries, the maternal mortality ratio (MMR) has become very low and appears to have remained stable for many years. The MMR in low-income regions has also gradually come down over the last two decades but remains persistently high [Fig. 1] [1]. On a global level, the highest burden of maternal mortality lies in lower and lower-middle income countries, where almost 95 % of all maternal deaths occur [2]. Even in some high-income countries, an apparent rise has become a matter of concern. In the United States, maternal mortality rates have been reported to have nearly doubled from 17.4 per 100,000 live births [LB] in 2018 to 32.9 in 2020 [3]. Europe has contrastingly seen a gradual fall in MMR from 26 per 100,000 LB in 2000 to 13 in 2020 [Fig. 1] [1]. Continuing MMR surveillance remains an valuable obstetric performance parameter. The importance of maternal healthcare and the efforts to reduce maternal mortality rates worldwide are reflected in the multiple statements and goals set by UN network agencies: “Millenium Development Goals”, “Sustainable Development Goals”, or the “Strategies toward ending preventable maternal mortality” [4, 5].

Conclusion

Enhanced obstetric surveillance systems are an indispensable component of quality assessment of maternal health care including in high income countries. High standards of case ascertainment and the reviewing and formulation of lessons learned lead to a better understanding of the events behind every maternal death and thus providing tools to improvements for future healthcare (Table 1). Involvement in the obstetric surveillance process should not only involve healthcare providers, but also the political/governmental authorities who should embrace and support the surveillance system by providing financial support and introducing legislation to protect anonymity and data. Systems must also be in place whereby fear of disciplinary or medico-legal procedures is reduced thus encouraging the healthcare providers to voluntarily come forward to report such cases. Only by ensuring that an effective Enhanced Obstetric Surveillance System is in place, can we ensure an improvement of maternal mortality death mortality numbers.

Abstract

This study presents a novel financial performance forecasting method that combines the threshold technique with Artificial Neural Networks (ANN). It applies the threshold regression method to identify the factors within the board of directors that influence the financial performance of traditional industries in Taiwan. The findings indicate that the ANN method effectively predicts financial performance by using relevant board structure data. Furthermore, the empirical results suggest that boards with more members demonstrate increased profitability. Additionally, a more significant presence of board members with accounting expertise contributes to more consistent profits. In contrast, an increased presence of members with financial expertise has a more pronounced impact on profitability.

Introduction

Traditional industries, including sectors such as metal machinery, the chemical industry, and subsistence industries, have played pivotal roles in Taiwan’s economic development, trade, and industrial evolution over the years. However, in recent years we have witnessed the emergence of economic powerhouses and the rapid progress of regional economic and trade partnerships like ASEAN, resulting in significant changes to the global economic and trade landscape. As a result, these industries are now operating within a new and highly competitive environment. In this era of rapid transformation, these industries must identify the essential factors that will enable them to maintain and enhance their positions on the international stage.

Investors seek to achieve multiple objectives through the election of a company’s board of directors. They aim to enhance corporate governance, safeguard the rights and interests of shareholders, and anticipate that the board will contribute expertise to improve the decision-making prowess of the board itself. Ultimately, this is expected to enhance the company’s overall performance. Consequently, whether the board of directors can positively impact corporate performance has remained a significant research focus in management and academia.

While many studies have explored the relationship between the board of directors’ characteristics and company performance, a notable need exists for more in-depth articles examining the professional backgrounds of the board members and CEOs and how their leadership qualities influence financial performance. This gap in research underscores the need for a more comprehensive understanding of the intricate dynamics between leadership, professional expertise, and corporate financial outcomes.

Conclusions

The research results show that, for companies in traditional industries that are listed on the Taiwanese stock market, the composition of the board of directors impacts the business’s financial performance.

Boards with more members may have a greater capacity for overseeing corporate governance. A greater representation of board members with accounting expertise tends to lead to more consistent corporate profits, whereas an increased presence of members with financial expertise results in more pronounced profit fluctuations. Additionally, in the case of companies with lower profits, managers may face pressure from loan contracts or receive limited attention from investors, potentially leading to heightened practices related to profit management. Managers may aim to maximize their benefits. At this time, the return on assets is high, and the managers obtain the expected benefits. Thus, to restrain the profit management behavior of managers, enterprises need to have a broader view and have specific judgments and analyses in each enterprise to build organizational structure and procedures. The operation of the board of directors is more effective because of the industry’s characteristics, the enterprise’s size, the capital structure, and the performance of the enterprise. Finally, this study used deep learning and big data techniques to build an Artificial Neural Network (ANN) model that specializes in predicting the ROA of companies based on most factors related to board structure, with a prediction accuracy of over 78%.

Abstract

     In this study, we investigate whether and to what extent country-level board reforms affect audit pricing decisions. We find audit fees are positively associated with board reforms. An increase in audit fees is more pronounced for firms that switched up to Big N auditors following board reforms. After board reforms, firms are less likely to issue restatements, and both analyst forecast accuracy and management forecast frequency increase, indicating improved audit quality and information transparency in the postreform period. Moreover, the positive relation between board reforms and audit fees is more evident for firms in countries that lack institutional governance mechanisms, captured by emerging capital markets, high political risk, weak governmental enforcement actions and low corporate governance quality. Overall, our findings broadly support the view that audit fees increase upon demand for better audit quality.

INTRODUCTION

     To date, most empirical research on board and audit committee independence has not explicitly separated the gross costs and benefits of reforms, but rather, has focused on the net impact to financial reporting outcomes, firm value and capital markets in assessing the merits (Fauver et al., 2017; Cohen et al., 2014; Klein, 2002; Palmrose et al., 2004; Hribar & Jenkins, 2004; Becker et al., 1998; Dhaliwal et al., 2010; Griffin et al., 2008; Tsui et al., 2001; Abbott et al., 2003). This empirical stream has provided valuable, yet mixed, findings: the net effect of board independence and a separate audit committee varies significantly across firms, industries and countries (Fauver et al., 2017). Such variations call for a better understanding of the specific nature of costs and benefits to determine the economic trade-off of board reforms. To respond to such a call, this study is able to quantify the direct statutory audit costs incurred by firms by examining the adoption of board reforms.

     We focus on audit costs because the adoption of board reforms is likely to have a profound impact on audit time and effort to review clients’ financial statements. Therefore, audit fees represent a direct, observable and measurable cash outflow that may incorporate significant changes in the board structure and composition.1 The impact of board reforms on audit fees is twofold. On the one hand, a more effective board with independent directors may demand higher audit quality (greater assurance), which requires more audit effort, to protect their reputation and to avoid future legal liability.2 This is consistent with the theory that audit fee is an input-based audit quality measure and restatement is an output-based audit quality measure, according to DeFond and Zhang (2014). As a result, the demand for high audit quality may increase audit costs/fees by ensuring that auditors perform sufficient and appropriate audit procedures (Carcello et al., 2002; Abbott et al., 2003; Zhang & Yu, 2016) and thereby reducing the likelihood of future financial restatements, which supports quality demand hypothesis.3

CONCLUSION

     One of the potential benefits of board reforms is to improve the process by which auditors are selected, retained and compensated. That raises an interesting question to accounting researchers and practitioners. To the best of our knowledge, this study is the first to test the association between board reforms and audit fees in a global setting. Due to different types and components of board reforms as well as country-level characteristics, prior studies provide mixed evidence as to whether such potential benefits of board reforms are being achieved. This study provides a comprehensive empirical analysis of the relation between a board reform’s efficacy and audit pricing decisions.

Following the emphasis on board diversity and its roles on firm performance, an examination on the relationship between board diversity and firm performance in the lodging industry is conducted. Further, this study employs internationalization, a moderator, to more comprehensively investigate the board diversity-firm performance relationship. This study found that gender diversity shows a positive and significant effect on firm performance while age diversity has an insignificant effect on firm performance. Regarding the moderating effect of internationalization, the degree of internationalization significantly magnifies the effect of gender diversity on firm performance but insignificantly moderates the effect of age diversity on firm performance. This study attempts to contribute to the hospitality and tourism literature by examining the topic that has been rarely dealt with and provide practical guidelines for stakeholders of a lodging firm especially when selecting board members.

Introduction

In accordance with a pivotal role of a board of directors on corporate governance and firm performance, shareholders need to consider various factors including work experience and compensation of candidate board members while composing a board (Milliken and Martins, 1996). Particularly, board diversity, defined as “variety in the composition of a board of directors” (Kang et al., 2007, p.2) has been one of the most critical issues associated with the effectiveness of the board and its influence on firm performance (Milliken and Martins, 1996). For example, National Association of Corporate Directors (NACD, 2012) supported shareholders’ assertion that demographic factors, such as gender and age should be evaluated in the selection of directors for corporate growth and better performance. And, Morgan Stanley Capital International industry reports covering 6,500 firms revealed that a firm with more diversified board is less likely to be damaged by corporate scandals including bribery and fraud of executive managers (Grene and Newlands, 2015). Similarly, the importance of board diversity has been enlarged in the hospitality industry. For example, in an annual report, InterContinental Hotels Group underscored various dimensions of diversity in a board for ensuring long-term and sustainable valuate creation (IHG, 2019). Following the emphasis on board diversity, to date, while multiple studies have explored the board diversity-firm performance relationship, empirical results have been inconclusive (Erhardt et al., 2003). A stream of researchers, based on the resource dependence theory and the human capital theory, found that board diversity has a positive effect on firm performance (Joecks et al., 2012; Erhardt et al., 2003; Kim et al., 2013). Contrarily, other studies, grounded on the social identity theory and the similarity-attraction paradigm, found a negative relationship between board diversity and firm performance (Treichler, 1995; Arena et al., 2015). Inconsistent empirical results may be attributable to multiple factors, such as industry-specific characteristics and operationalization of board diversity (e.g., gender, nationality, and age) (Jackson and Schuler, 1995; Oliver, 1997). Particularly, according to Guillen (2000), appropriate systems of corporate governance differ, contingent on industries, thus, the effect of board diversity on firm performance should be developed in the consideration of industry-specific characteristics.

1- Introduction

2- Materials and methods

3- Results

4- Discussion

5- Conclusion

References

Abstract

This study examined the strategic planning process used in U.S. public company boardrooms, with a particular focus on companies that used board-level Strategic Planning Committees (SPCs) as opposed to those that engaged the full board in strategic planning oversight (which we call “strategic planning overall” or “SPO” firms). Based on interviews with 8 SPC members and 12 directors from SPO firms, we found a number of similarities in SPC and SPO processes, as well as a number of key differences. Overall, it is clear that there often can be a fundamental tension between management and directors with respect to the responsibility for strategic planning. There also can be significant information asymmetries arising from agency theoretic assumptions requiring board independence and arms-length interactions. Organizational scope may, within limits, constrain these assumptions. Such conditions increase both resource and information processing demands on the board, creating a need for greater formality in the board’s strategic planning processes. These demands increase the need for paradoxical approaches that can accommodate greater flexibility in board-management interactions. The paradox lies in the board’s ability to simultaneously meet and balance agency theoretic, resource dependence based and information processing demands. The contrasting organizational logics that are in play result in paradoxes that influence whether and in what form a board-level SPC should be constituted. The evidence suggests that constituting and structuring SPCs to embrace more collaborative interactions between the board and management could be helpful in dealing with the contrasting requirements and tensions that arise in certain firms. Embracing paradoxes and modifying governance approaches to include collaborative interactions with management may also help in ensuring that the board’s strategic planning processes are equipped to deal with the challenges that confront the organization. Ultimately, individual company directors will need to determine whether and in what form a boardlevel SPC would add value to their governance structure and processes. Our interviewbased evidence suggests that firm size and director experience are important considerations in the choice of how the board should oversee strategy.

Introduction

Because of the board’s distance from daily operations, information asymmetries between the board and management, and the need for board independence, many scholars have traditionally proposed a limited role for the board in strategy development (Conger et al., 2001; Hendry and Kiel, 2004; Pugliese et al., 2009). In contrast, others have argued that boards have a legal responsibility for strategy (Coffee, 2005; Harrison, 1987) and should actively contribute to strategy development (Andrews, 1980; Carpenter and Westphal, 2001; Goodstein et al., 1994). Such arguments become especially important in determining whether strategic planning is handled by the whole board or whether it is largely entrusted to a board Strategic Planning Committee (SPC)1 constituted for this purpose. The objective of our study is to examine board strategic planning processes, including the reasons behind the formation of board SPCs, based on semi-structured interviews with 20 directors who are involved in board strategic planning processes. Our motivation comes from the following considerations. First, while there has been a voluminous amount of prior work sustained from very early days on strategic planning activities of firms at the management level (Grant, 2003; Lorange, 1993; Mintzberg, 1993; Pearce et al., 1987; Veliyath, 1992; Veliyath and Shortell, 1993), ours is the first study on strategic planning processes conducted by board-level SPCs. Second, we are able to engage with and integrate prior work that has characterized board functions in terms of resource dependence theory (Hillman and Dalziel, 2003; Hillman et al., 2008; Pfeffer, 1972).

1- Women on family business boards: A smart thing to do

2- Family business goals: Beyond economic performance

3- Economic benefits of women in the family business boardroom

4- Women directors and family businesses’ noneconomic goals

5- Why an absence of women on the board can harm the family firm

6- Performance disadvantages of women directors

7- Revisiting the research on performance disadvantages of women directors

8- Measures to encourage the presence of women on family business boards

9- Lessons learned

References

Abstract

The most successful and longest-enduring family firms are progressively encouraging the active presence of women on their corporate boards. Why is the presence of women on boards so important for family firms? And how can policy makers and controlling owners encourage the active presence of women on family business corporate boards? By integrating the literature on women in governance and the goals of family businesses, we take a step toward increasing shareholder awareness of the economic and noneconomic benefits that women can bring to the family business boardroom. Using theory and empirical evidence, we show that the presence of women on corporate boards can be instrumental for the controlling owners of a family business to achieve prosperity and success, to preserve family cohesion, and to improve the reputation of the family and business simultaneously. Furthermore, we discuss the socioemotional and economic ramifications of excluding women from the family business board of directors. We conclude with four practical recommendations for encouraging the active presence of women on family business boards.

Women on family business boards: A smart thing to do

One of the most important institutions determining the success orfailure in organizations is the board of directors. The board of directors sets the strategic direction of the firm and is responsible for maintaining its long-term performance (Judge & Talaulicar, 2017). Particularly in environments where family ownership is ubiquitous, the importance of the board of directors is exacerbated (Bammens, Voordeckers, & Van Gils, 2011; Samara & BerbegalMirabent, 2018; Samara, Jamali, Sierra, & Parada, 2018). If adequately structured, the board of directors can mitigate family-family and family-nonfamily conflicts of interests that typically constrain family business performance (Samara & Berbegal-Mirabent, 2018; Villalonga & Amit 2006). In this regard, the relationship between the presence of women on the board of directors and family business performance has attracted increased attention in the last decade (Campopiano, De Massis, Rinaldi, & Sciascia, 2017), partly because women are expected to gradually become more involved in leadership positions in the near future (Ernst & Young, 2017). Yet, the relationship between the presence of women directors and family businesses’ economic performance remains inconclusive with empirical results reporting both negative (Amran, 2011; Minguez-Vera & Martin, 2011) and positive effects (Cruz, Justo, & De Castro, 2012).

Introduction

Literature review and theoretical framework

Data and methodology

Results

Discussion and conclusions

References

Abstract

The European Commission has proposed that member countries develop their national self-regulation and governance initiatives to increase the number of women on corporate boards with the aim of promoting gender equality in the processes of decision-making. This has provoked some controversial opinions, which in turn has led to the search for factual data which may support the legal initiatives. In order to shed more light on this topic, this study investigates the influence of a higher percentage of women on the board of directors of companies (excluding financial companies) included in the index of the Spanish Stock Exchange IBEX35 for a fifteen-year period: 2003–2017. To do this, we use a two-stage instrumental variables (IV) regression to address endogeneity and reverse causality problems. Moreover, we study the influence of a mandatory law on female presence on company boards by using a panel data methodology. The findings of this study show that the increasing number of women on boards is positively related to higher financial performance. Moreover, as expected, the gender mandatory law boosts the female proportion on boards of directors. Consequently, there are valid business as well as ethical arguments to support mandatory gender legislation.

Introduction

Diversity among board members means heterogeneity, which can be measured with either visible characteristics (race, age, gender, etc.) or intangible items (education, occupational background, etc.) (Rao & Tilt, 2016). The scarce traditional representation of women in management positions is due to the so-called glass ceiling, namely, an invisible cultural barrier which prevents trained women from holding responsibility in organizational positions (Mateos del Cabo, Gimeno, & Nieto, 2012). Equal opportunities in both social and economic circles is a basic human right. Furthermore, the systematic exclusion of women, who constitute half of society, leads to sub-optimal boards of directors (BenAmar, Chang, & McIlkenny, 2017). Gender diversity in the composition of company boards and its implications for the firm’s financial performance is an important consideration and a prominent line of current research on the effect of related legal initiatives implemented in several countries (Velte, 2017). Some governments have enacted certain laws to promote gender equality, either mandatory or not, whilst others have only implemented some recommendations or disclosure requirements to companies. Table 1 shows the legislation governing gender diversity on the boards of directors and the proportion of women on these boards from 2007 to 2017 in the main European countries.

Due to worldwide corporate governance failures and accounting scandals in recent years, there is a growing interest in studying the impact of corporate governance on firm performance (e.g., Brown and Caylor, 2006; Dittmar and Mahrt-Smith, 2007; Gompers et al., 2003). Among corporate governance elements, the oversight responsibilities of boards of directors and audit committees have been emphasized by policy makers, regulators, and researchers. Such emphasis is based on the idea that independent, informed, and proactive boards and audit committees can and should be key in protecting the interests of investors (Sarbanes-Oxley Act, 2002 [SOX]). This paper investigates the association between characteristics of boards and audit committees and the formation of the latter, and firm performance. Our study is motivated by conflicting results in the literature and lack of research on the association between corporate governance practices and firm performance in emerging markets. Agency theory suggests that a better-governed firm should have better performance and higher valuation due to lower agency costs. For example, Gompers et al. (2003) find that better corporate governance is associated with higher firm valuation. Brown and Caylor (2006) find that bettergoverned U.S. firms have higher return on equity, higher return on assets, and higher Tobin’s Q— a measure of performance. However, resource dependency theory argues that corporate directors bring information and expertise to the firm, create channels of communication with the firm’s important external constituents, obtain commitments of support from outsiders, and work to create legitimacy for the firm in its external environment (Pfeffer and Salancik, 1978). Thus, this theory views corporate directors as “insiders, business experts, support specialists, and community influentials” (Hillman et al., 2000). From the resource dependency theory perspective, there could be a negative relation between board independence and firm performance and value (Singh and Gaur, 2009; Khosa, 2017; Adams and Ferreira, 2007; Harris and Raviv, 2008). Our study investigates such board-performance relationships in an emerging market of Greece, where both monitoring and resource dependency/advisory roles of boards might be important to firms. The extant literature has also documented the role of audit committees in reducing internal control weakness and financial statement restatement frequency, and increasing earnings quality (Abbott et al., 2004; Klein, 2002; Krishnan, 2005; Zhang et al., 2007).

Dividend policy behavior is at the core of finance theories and is still the most debatable and prominent issue in the corporate finance literature for both developed and developing markets. Numerous researchers have devised theories and studies to uncover the issues pertinent to dividend policy dynamics, but Black (1976) refers to the dividend as a puzzle. Brealey and Myers (2005) argue that the dividend is among the top ten unresolved problems of finance. Lintner (1956) proposes the dividend partial adjustment model and suggests that current year profits and previous year dividends are the only two contributing factors for a firm’s dividend. Later, many researchers introduced their works to suggest the key factors that drive a firm’s dividend policy. A plethora of literature identifies debt financing, earning measures, free cash flows, firm growth, investment opportunities, firm size, large shareholders, firm risk level, etc., as potential contributors for determining a firm’s dividend policy for both developed and developing markets (Bhattacharya, 1979; Ho, 2003; Kale and Noe, 1990; Charitou, 2000; Al-Malkawi, 2007; Anil and Kapoor, 2008; Juma’h and Pacheco, 2008; Ahmed and Javid, 2009; Ramli, 2010; Mehrani et al., 2011; Al-Shabibi and Ramesh, 2011; Hashemi and Zadeh, 2012; Appannan and Sim, 2011). In addition to these factors, researchers have also identified board size, board composition, board independence, board gender, ownership concentration, outside directors, audit type, CEO power, institutional ownership, investor protection and shareholder rights as the key determinants of dividend policy under the umbrella of corporate governance (Adjaoud and Ben‐Amar, 2010; Abor and Fiador, 2013; Setia-Atmaja, 2010; Erol and Tirtiroglu, 2011; Al-Shabibi and Ramesh, 2011; La Porta et al., 2000). The literature on dividend policy is too extensive to survey here, but Baker et al. (2011) argue that divided policy still vexes financial economists. Despite the ample literature published on the dividend behavior of firms, there is still room to understand what factors drive the dividend pay-out decision. This study focuses on a new dimension, i.e., financial expertise on the board, to explain the dividend policy dynamics in emerging markets. This study is motivated by the following two reasons: first, the confidence of shareholders has been shaken by various accounting scandals and financial crises since the 1990s, such as Enron, HealthSouth, Tyco, WorldCom and the financial crisis of 2007-2008, which has stressed the regulators and market makers to the need for board members to have financial expertise. Kirkpatrick (2009) and Walker (2009) argue that the lack of financial expertise on corporate boards played a major role during the financial crisis. Therefore, the presence of more financial expertise on a board ultimately influences the board’s decisions, including dividend policy. Having financial expertise on the board will keep them from being accused of failure in their watchdog role and will better serve the shareholders’ interests. Second, there is a growing body of literature on how financial expertise on boards improves the board’s efficiency (Karamanou and Vafeas, 2005; Agrawal and Chadha, 2005; Krishnan, 2005; Beasley, 1996; Dechow et al., 1996; Anderson et al., 2004), leads to better corporate practices (Krishnan, 2005; Robinson et al., 2012) and improves firm performance (Dionne and Triki, 2005; Francis et al., 2012; Fernandes and Fich, 2013). Therefore, given the significance of financial expertise of board members, there is a need to analyze how the financial expertise on a board affects the dividend policy, which is considered an important factor in mitigating agency conflict and improving corporate governance.

Purpose – The quality of financial reporting for the financial institutions is vital for the public, as the negative consequences of manipulated financial statements will not only affect shareholders but also the regulators’ reputation and the society at large. The purpose of this paper is to assess the association between different corporate governance mechanisms and their impact on audit and reporting quality. The gender factor is introduced from a diverse boards’ perspective to highlight any impact of female presence on the quality of financial statements. Design/methodology/approach – The authors examine a sample of financial institutions listed on the FTSE-350 index for the years 2011 to 2015. The financial sector has its own and different regulations, and financial reporting framework and auditors are expected to behave into more scrutiny. Bloomberg database is used to obtain governance and financial data, while firms’ annual reports are used to collect audit fees and audit committee information. A panel data regression is used to test hypotheses. The authors also control for unobservable heterogeneity, reverse causality and endogeneity. Findings – The results suggest that boards with larger size and higher independence pay higher audit fees to enhance the monitoring capacity and protect the wider group of stakeholders. The results also show that women on boards are likely to reduce the risk of manipulated financial statements, as women are more inclined toward truthfulness, cautiousness and conservatism. In addition, the reported results show that audit committees with more independent members are more inclined toward obtaining higher quality audit to enhance firm’s reporting quality. Originality/value – Given the recent governments’ intervention to avoid financial institutions’ negative impact on the economy, this study is relevant and provide policymakers insights into the existing relationships between audit fees and financial institutions’ governance structure.

Introduction

The aim behind the issuance of corporate governance codes is to deliver sound corporate governance to improve monitoring over management practices, accountability and transparency for the long-term success of the business. The succession of corporate governance codes from Cadbury report to the latest UK corporate governance code recommends on the importance of board composition for effective functioning. As effective boards care for long-term firm viability, they seek to disseminate high-quality and reliable information to the wide range of stakeholders to limit the uncertainty gap and manage the issue of information asymmetry (Cohen et al., 2002; Zaman et al., 2011; Jizi and Dixon, 2017). Therefore, the role of public accounting is vital to provide assurance over the reliability of the disclosed financial statements and their freedom from material misstatements. Improper audit opinions and aggressive use of management estimates could be minimized through the presence of an active/effective board of directors and a demanding audit committee for better audit quality. Also, the presence of the mentioned governance mechanisms helps in protecting auditors’ independence as well (Zaman et al., 2011). The tasks performed by external auditors have always been a controversial issue regarding their nature, scale, and responsibility. According to the latest UK corporate governance codes, the Board of Directors is accountable to appoint external auditors, participate with external auditors in non-audit projects, re-appoint external auditors, form audit committees to collaborate with external auditors and agree on audit fees. Expert audit committee directors tend to recommend assigning industry specialist external auditor for better audit outcome. It is noted that effective audit committees and independent BoD demand better quality leading to an increase in audit fees (Abbott and Parker, 2000). Potential gaps with external auditors are reduced by incurring less agency costs associated with the presence of independent BoD (Uang et al., 2006). The presence of the agency problem, if not minimized, has a serious effect on external auditors. Several studies have previously determined factors that influence audit fees and auditors’ performance which in turn will affect the audit/accountancy profession as well the auditees (Lin and Liu, 2009). In addition to the different mechanisms of an effective corporate governance mechanisms, previous literature mentions that corporate decisions are better achieved in the existence of female directors (Thiruvadi, 2012). Women are effectual governance players and their participation in a leading position influences firms’ performance (Colaco et al., 2011). Firms with gender diverse boards are likely to have higher earnings quality and information transparency (Post and Byron, 2015).

Introduction

Research on corporate boards has studied board composition, such as the presence of independent directors serving on corporate boards, and suggested that independent directors enhance monitoring function. However, an important but mostly overlooked factor that affects a board’s ability to perform its monitoring and advisory roles is the heterogeneity (diversity) of directors. In recent years, investors and regulators worldwide have called for a more diverse board composition. On December 16, 2009, the U.S. Securities and Exchange Commission (SEC) approved a set of rules requiring public companies to disclose in proxy statements whether and how they consider diversity in evaluating director candidates (Securities and Exchange Commission (SEC), 2009). Under these rules, companies are allowed to define diversity in ways they consider appropriate,1 with some companies emphasize functional attributes, such as tenure and expertise, and others focus on surface-level attributes, such as race, gender and age. While diversity has been widely recognized as a desirable board characteristic, research findings on the effects of board diversity on firm performance are inconclusive because of the differences in how diversity is measured and conceptualized.2 Some researchers turned to examine the impact of board diversity on boards’ advising and monitoring functions (e.g., Adams & Ferreira, 2002, 2009, Farrell & Hersch, 2005). However, most studies on board diversity have a narrow focus on single attribute, such as gender, race, or expertise and results from these studies are difficult to generalize without taking other dimensions of diversity into account (Rhode & Packel, 2010). In this study, we examine the impact of board diversity on board performance in overseeing corporate investment activities. Unlike other studies examining only one diversity attribute, we measure diversity in both relation-oriented dimension, which consists of “surface-level” differences such as gender, race, and age, and task-oriented dimension, which consists of “deep-level” or job-related differences such as tenure and expertise. Corporate investment oversight provides an interesting setting to examine board performance and effectiveness. While firms have to take risky investments to run business, both over-investment (i.e., excessive risk taking) and under-investment (i.e., excessive risk avoidance) could damage firm value and endanger their survival. In the wake of the major financial crisis in the late 2000s, regulators and the investing public have broadened boards’ role to include risk oversight (e.g., COSO, 2009). Board responsibilities for overseeing corporate risk taking activities, including corporate investments, come from state law fiduciary duties, federal law and regulations, stock exchange listing requirements, and general best practices (Brancato, Tonello, Hexter, & Newman, 2006; Lipton et al., 2011). In general, board responsibilities include reviewing the company’s investment guideline, strategy, and performance, and overseeing the company’s investment-related risks. Boards of large public companies could establish an investment committee or a finance committee to assist in performing these highly specialized and complex tasks.3 Despite the increased significance of boards’ role in investment oversight, corporate governance research has not provided much guidance on what board characteristics are associated with board performance in overseeing corporate investment. Drawn from theories in group diversity and group performance, especially social categorization (Turner, 1987), similarity/attraction (Berscheid & Walster, 1978), intergroup contract (Allport, 1954), and cognitive diversity theories, this study examines the association between board diversity and board investment oversight.

1- Introduction

2- Context, theory and hypotheses

3- Research methods

4- Data analysis and results

5- Discussion and conclusions

References

Abstract

In much of the developing world, families represent the dominant form of firm ownership. This study investigates how this influences equity ownership strategies when firms venture abroad. Drawing on agency theory and institutional theory, we investigate the direct effect of board composition and family ownership on the equity-based ownership strategies of multinational enterprises (MNEs) in their affiliates, and how institutional distance may moderate this. Examining foreign affiliates of listed Turkish MNEs, we find that a high ratio of independent directors is negatively linked to levels of equity ownership of MNE affiliates. We also find that a high ratio of inside directors on the board is positively associated with the equity stake of MNEs in their affiliates. The significant interaction effect between board composition, family ownership and institutional distance helps explain the unexpectedly weak effects of institutional distance.

Introduction

How do families impact the internationalization activities of firms in which they hold a significant stake? This study investigates the effects of board composition and family ownership on the equity ownership strategies of multinational enterprises from emerging markets (EM MNEs) in their affiliates. Further, we assess the moderating effect of institutional distance on this relationship. MNEs may be subject to pressures from a range of different institutional regimes, reflecting both investor country of origin and where the foreign operations take place. There is an extensive literature on how MNEs behave abroad (Almond et al., 2005; Brewster, Wood, & Brookes, 2008), which has tended to concentrate on the relative infusion of policies and practices from the country of origin. Less attention has been accorded to the association between the MNE’s internal corporate governance mechanisms and foreign equity ownership (e.g. Rhoades & Rechner, 2001; Filatotchev, Strange, Piesse, & Lien, 2007; Musteen, Datta, & Herrmann, 2009; Filatotchev & Wright, 2011). Internal corporate governance reflects both institutions, and the strategies dominant owner interests adopt in response to them. When formal regulation is weak or uncertain, the nature of the latter is vested with particular importance. Whilst weaker institutional coverage may be associated with greater agency problems (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2000), this does not preclude actors from improvising solutions that secure the best returns possible under the circumstances (Lane & Wood, 2012). Within an emerging market (EM) context, we explore how international investment strategies may be molded by corporate governance realities and dominant ownership forms. This study makes extensive use of recent advances in institutional theory and develops insights into the implications of family capitalism for key players. It further evaluates how internal corporate governance mechanisms intersect with external ones in imposing a specific agenda on the firm.