The Relationship Between the Ownership Structure and Board Effectiveness

PurposeThe purpose of this study is to investigate simultaneous relations between corporate governance (CG) practice and cash flow right, cash flow leverage (the divergence between control right and cash flow right of controlling shareholders). The two ownership measures reflect alignment and expropriation incentives of controlling shareholders. This study also examines the effect of multiple large shareholders (MLSs) on CG practice.Design/methodology/approachThe study uses publicly listed companies (PLCs) excluding those from the Indonesian finance sector during 2011-2013 as the samples of the study. Two-stages least squares regression models were used to test the simultaneous relations between CG practice and ownership structure variables. The study develops a CG instrument to measure CG practice based on ASEAN CG Scorecard, that comprehensively covers OECD CG principles and that can be used for panel data.FindingsCG practice has a positive influence on cash flow right and has a marginally negative impact on cash flow leverage, while cash flow right and cash flow leverage have a marginally negative impact on CG practice. Further, the existence of large MLS complements CG practice, but as the control right of the second largest shareholders becomes closer to the largest shareholder, the complement relation becomes less important. State- or foreign-controlled PLCs practice better CG than other PLCs.Research limitations/implicationsStudies on CG/ownership structure need to treat CG and ownership structure as endogenous variables in their research design. In addition, the level of rule of law in a country should be taken into account when examining the relation between CG and ownership structure. The interrelation among CG, ownership structure, capital structure and firm performance has been studied in the context of dispersed ownership structure and strong rule of law. Thus, future study needs to examine the interrelation among these four concepts in countries with high concentrated ownership and weak rule of law.Practical implicationsTo minimize the risk of expropriation, investors in the capital market need to select shares of PLCs that practice CG suitable for the ownership structure of PLCs, have high ownership by the largest shareholder and have no divergence between control and ownership right, and or have MLSs. PLCs may need to choose the level of CG mechanism in the context of their ownership structure and consider the benefits and costs implementing them.Social implicationsThe study supports the “one size does not fit all” perspective on CG and, thus, it supports the recently enacted financial service authority (FSA) rule requiring PLCs to follow the “comply or explain” rule on the CG code for PLCs. The FSA needs to enforce the compliance of PLCs with CG rules and encourage PLCs to implement CG in substance, not just in form. To strengthen the positive impact of good CG practice in attracting investments in capital market, the regulator needs to improve investor protection rules and ensure strong rule of law.Originality/valueThe study is the first to examine the simultaneous relation between CG practice and both cash flow right and cash flow leverage of the largest shareholder. It is also the first that investigates the impact of MLS on CG practice. It explores the complement and substitution relation between the two concepts in reducing agency costs. In term of research design, the study develops a CG instrument that is based on OECD CG principles, that can be used for panel data and that uses public information.

Following the recent corporate scandals and turbulences in the Ghanaian financial sector, a fierce debate on banks and corporate performance nexus has emerged. While literature on banks-corporate performance subject remain highly contested, evidence within the Ghanaian contest is sparse. This paucity of literature has motivated this study to examine the effect of corporate governance practices on commercial banks’ performances within the Ghanaian contest drawing evidence from the Ghana Stock Exchange market for the period 2009-2019. Correlational analysis and fixed effect and random effect regression estimator have been employed as the main estimation techniques. Results show that board diversity positively influence corporate performance indicators such ROA and EPS. The study further found that size of the board of directors has negative effects on bank’s performance. Another very important discovery from this study was that, composition of board of directors has effects on bank’s performance. Thus, independent board of directors have positive effects on bank’s performance. Ownership concentration has negative effects on bank’s performance in that larger ownership was usually associated with higher risks. As a sequel, policy should aim at enhancing corporate governance practices while females should be given a fair representation on board committees. The study again advises that independent directors should be included in the board to achieve greater firm results. The arrangement of company ownership should be assessed and controlled. Concentrated ownership structure in specific should be promoted and banks should strive to increase the size of the Independent Board to improve results

EUGENE FAMA and Michael Jensen's treatment of the "Separation of Ownership and Control" is both insightful and informative. It deepens our understanding of corporate control, and the analysis of residual claimants usefully extends the economics of internal organization to include partnerships, mutuals, nonprofits, and the like. The basic argument is this: specialized governance structures arise in response to the efficiency needs of each type of organization. This is an important argument and one with which I broadly concur. They couple this, however, with a strong suggestion that these structures have reached a high degree of refinement-on which account there is not now, if indeed there ever has been, an organization control problem with which scholars and others are legitimately concerned. On this point I have grave doubts. My discussion of the paper addresses three issues: What is the relation, if any, of the hierarchical organization of the firm to economic performance? What relation, if any, does residual claimant status have to the composition and character of the board of directors? And is there now or has there ever been a corporate control problem? I deal with each of these issues in order.

Editorial – Toward a Global Theory of Corporate Governance

The study examines the effect of corporate governance practices and regulatory agencies on the performance of government establishments in Anambra State of Nigeria. Twenty five government establishments in Anambra State were studied using their general managers and Accountants as participants. Spearman’s rank correlation coefficient and student t-transformation were used to test for relationship and significant respectively. The results of this study reveal that corporate governance has positive and significant relationship on the performance of corporate governance regulatory agencies. Further results reveal that agreement on corporate governance has positive and significant relationship with lay down standard. The study calls for corporate governance regulatory agencies to discharge their duties without fear of favour and should shun all forms of gratification and render objective report on government organizations. This will redirect government establishment on improving their corporate governance practices, which will enhance their firm value and meet the need of the future generation. Keywords: Corporate Governance, Corporate Practices, Corporate Mechanism, Regulatory Agencies, Standard

Board Characteristics, Ownership Structure and Firm Value of Listed Petroleum Companies in Nigeria

Purpose This paper aims to investigate the effects of different sets of corporate governance (CG) practices on bank performance before, during and after the financial crisis. The study proposes some policy measures for improved CG practices to protect banks from the detrimental effects of future financial crises and economic meltdowns in the context of emerging markets such as Kazakhstan. Design/methodology/approach The study analyses data from all commercial banks listed in Kazakhstan Stock Exchange for the pre-economic crisis, during the crisis and after the economic crisis periods. The study uses the panel regression model to control unobserved time-constant heterogeneity. Findings The study found that better CG practices led to better operating performance of the banks after the financial crisis periods. The changes in CG codes, board structures, disclosure requirements and board members’ competencies over time had a significant influence on CG practices and subsequently improved operating performance of the banks. Originality/value This is one of the first studies to examine the effects of CG practices on bank performance in central Asian transition economies, which are still heavily influenced by Soviet heritage and legacy.

Corporate Governance and Firm Performance in Kuwait

This study examines the effect of corporate governance practices on the financial performance of the Nigerian National Petroleum Company (NNPC) Ltd. The data for the study was obtained from secondary sources, including the audited annual financial reports of the Nigerian National Petroleum Corporation Limited, covering ten years (2014-2023). With the aid of E-views 10 software, the regression analysis was utilized in analyzing the data. Test of hypothesis one reveals that board size has a statistically significant positive impact on operating profit, implying that larger boards may contribute to improved financial performance. Test of hypothesis two indicates that Independent Directors have a statistically significant positive effect on Operating Profit. It was found that corporate governance variables (board composition and board size) do not statistically impact NNPC Ltd’s financial performance. The study recommends that firms optimize board size and appoint independent directors with relevant industry expertise to enhance governance effectiveness and profitability.

Thomas Kuhn and Corporate Governance Research

The study was undertaken to investigate how corporate governance practices can influence the financial performance of microfinance institutions with a case study of microfinance inking ltd. This study specifically analyzed the effect of board size, gender diversity and CEO duality in the governance structures on performance of microfinance institutions. The descriptive method was used to collect data and the target population was forty-six, where 35 were the staff of INKINGI microfinance ltd 11 were members of the board. In data collection at the field, questionnaire and face-to-face discussion were used. To confirm the reliability, the research conducted a pre-test exercise before the actual data collection process. The validity was tested through experts in the domain of financial statements analysis and managerial decision making by asking the supervisor and other lecturers from Mount Kenya University. The researcher used the SPSS as tool of analysis, which helped to summarize the primary data into quantitative data and the researcher given the proper interpretation of the results basing on research objectives and questions. The analysis showed that board size, board independent and CEO duality were positively correlated with financial performance of Rwandan microfinance institutions (r= 0.810, p< 0.00 r= 00.706, p< 0.04 r= 0.623, p< 0.003 and r= 0.431, p< 0.00) respectively. Furthermore, the research showed that the board independence, gender diversity as well as board size have a considerable effect on financial contribution. According to the perception of the respondents, the results showed that corporate governance increases the profitability of the company, customer loyalty as well as extension of product line and services in the company. The study concluded that board size, board independent and CEO duality are important aspects to consider for better governance of microfinance. The study recommended that INKINGI microfinance ltd should improve their gender diversity for better corporate governance that provides diverse viewpoints, values and new ideas to the boards and provokes lively boardroom discussions. The management should appoint more women directors as they possess managerial skills like public relations, human resource and communication skills than operating and marketing skills. Keywords: Corporate governance practices, financial performance, microfinance institutions, Inkingi Ltd, Rwanda

Corporate Governance Practices and the Role of the Board of Directors: Evidence from UAE Conventional and Islamic Banks

Since the Asian financial crisis in 1997, there has been renewed interest in corporate governance policies and practices. This study focuses on corporate governance practices in Malaysia, where the increasing incidence of fraud suggests a lack of adequate corporate governance systems in Malaysian listed companies. Using an unbalanced data set comprising 200 companies representing a total of 579 firm-year observations, this study examines the effects of internal corporate governance mechanisms on the occurrence of fraud. Specifically, it looks at the effects of board characteristics, ownership structure and quality of audit on the occurrence of fraud in Malaysian listed companies from 2007 to 2009. The findings indicate that the number of board meetings was positively associated with the occurrence of fraud, but both state and foreign ownership revealed a negative correlation, whereas factors including the number of independent directors, board size, CEO duality and the quality of audit had no observable effects.

The level of corporate investment inefficiency is closely related to the effectiveness of corporate governance practices implemented by the largest shareholders and board of directors. This paper discusses empirical research that investigates the impact of the largest shareholders and board size on investment inefficiency with free cash flow as a moderating variable. This study uses a sample of 152 public companies registered in Indonesia’s capital market for the fiscal year ended on December 31, 2014 to 2018. This study uses a multiple regression method with the Ordinary Least Square (OLS) approach. This study find that the largest shareholders and board size are significantly negative impact on investment inefficiency, but the free cash flow doesn’t moderate the influence of board size on investment inefficiency.

The study aims to identify the effect of corporate governance factors on financial institution performance in Bangladesh. This study employs annual data for 20 financial institutions, including banks, NBFIs, and insurance companies, data is collected from 2011 to 2022. Here, three corporate governance indicators are utilized – board size, board independence, and director’s ownership. The performance of the financial institutions is measured using return on assets (ROA), return on equity (ROE), and net asset value (NAV). Apart from the corporate governance variables, three company-specific factors, i.e., firm age, financial leverage, and firm size, are used as the control variables. Panel data analysis is conducted through the dynamic Feasible Generalize Least Square (FGLS) method, and the robustness is performed using the random effect model. The results show that corporate governance parameter such as board size has a significant positive influence on financial institution performance in Bangladesh, where board independence and director ownership do not have a significant influence on the performance of financial institutions. Thus, the performance of financial institutions increases when board size increases. This indicates that board members are actively engaged in strategic decision-making and ensure the rights of all stakeholders, which helps improve financial institutions’ overall performance. Therefore, financial institutions may increase their board size to the maximum level to ensure better corporate governance practices in the organizations, which ultimately increases performance.