The governance-performance relationship: evidence from Ghana

Purpose-The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It also evaluates the effect of the introduction of a code of corporate governance on compliance rates across Ghanaian firms as well as assessing the impact of the code's introduction on firm performance for the study period 2000-2009. Design/methodology/approach-The paper develops a Ghanaian corporate governance index (GCGI) containing 33 provisions to measure corporate governance quality during the pre-code and the post-code sub-periods. The authors use a panel data analytical framework and fixed effects regressions to analyse the governance-performance relationships. Findings-After controlling for endogeneity, the authors find a statistically significant and positive relationship between the GCGI and firm performance. The analysis shows evidence of a statistically significant increase in the degree of compliance with the Ghanaian Code from the pre-2003 sub-period to the post-2003 sub-period. The authors also find that the introduction of the code has led to improved firm performance. However, not all elements of corporate governance appear to have a significant effect on firm performance. Research limitations/implications-One limitation of this study is the development of a corporate governance index. The binary coding used to construct the GCGI may not reflect the relative importance of the different corporate governance provisions. This means that all elements included in the index are given equal weighting. Future research may assign weights to each of the corporate governance provisions but this may have the disadvantage of making subjective judgements relative to the importance of each corporate governance provision recommended by the Ghanaian Code. Practical implications-These results have important implications for both policy makers and companies. For policy makers, it is encouraging for the development of a code of corporate governance to regulate firms rather than enforcing rigid laws that may not be value relevant. For companies, the improvement in compliance with a code of corporate governance can provide a means of achieving improved performance. Originality/value-This paper adds to the limited evidence on the governance-performance relationship in developing economies and in particular it analyses the role of a governance index. It is also the first paper to compare the pre- and the post-code governance index-performance relationship in an African or developing country

Firm performance, corporate governance and executive compensation in Pakistan

yesThis study examines the effects of firm performance and corporate governance on chief executive officer (CEO) compensation in an emerging market, Pakistan. Using a more robust Generalized Method of Moments (GMM) estimation approach for a sample of non-financial firms listed at Karachi Stock Exchange (KSE) over the period 2005 to 2012, we find that both current and previous year accounting performance has positive influence on CEO compensation. However, stock market performance does not appear to have a positive impact on executive compensation. We further find that ownership concentration is positively related with CEO compensation, indicating some kind of collusion between management and largest shareholder to get personal benefits. Inconsistent with agency theory, CEO duality appears to have a negative influence, while board size and board independence have no convincing relationship with CEO compensation, indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic GMM model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium

Commitment of independent and institutional women directors to corporate social responsibility reporting

This paper examines how independent and institutional women directors on boards affect corporate social responsibility (hereafter CSR) reporting. Most of the previous empirical evidence has shown a linear association between female directors and CSR disclosure, but to the best of our knowledge, no research has investigated the individual effect of independent and institutional female directors on CSR reporting. Therefore, the analysis of how the disclosure of CSR information is affected by independent and institutional women directors in a separate way merits our attention. Thus, we posit that there is a nonlinear association, concretely quadratic, between independent and institutional female directors on boards and CSR reporting. Our results demonstrate that, in line with the monitoring hypothesis, as the presence of independent and institutional women directors on boards increases, the CSR disclosure improves, but when their presence on boards reaches a tipping point (20.47% and 13.32%, respectively), CSR reporting decreases, which is consistent with the collusion hypothesis. This research contributes to the existing literature on the relationship between board gender diversity and CSR disclosure by suggesting that board structures formed by institutional and independent female directors have an effect on CSR reporting. Hence, female directors play a relevant role on boards since they may influence the CSR disclosure

The role of nominating committees and director reputation in shaping the labor market for directors: an empirical assessment

Research Question/Issue: Do the presence and independence of nominating committees within boards of directors affect the extent of rewards and sanctions provided by the labor market to directors with a reputation for being active in monitoring management? Research Findings/Insights: Results drawn from a longitudinal sample of directors sitting on the board of 200 public French firms suggest that the stronger a director's reputation for being active in increasing control over management, the larger the number of his/her subsequent appointments to (1) boards with a nominating committee, (2) to boards with a nominating committee which excludes the CEO and (3) to boards with a nominating committee dominated by non-executive directors. In contrast, we found that a director's reputation of being active in increasing control over management does not impact the number of his/her subsequent appointments (1) to boards without a nominating committee, (2) to boards with a nominating committee which includes the CEO and (3) to boards with a nominating committee dominated by executive directors. Theoretical/Academic Implications: This study shows that the outcome of the power struggle between the CEO and incumbent directors during the candidate selection process determines the profile of directors who will ultimately obtain the board appointment. On the one hand, independent nominating committees are likely to reduce the influence of CEOs over the process of a director's appointment, and therefore are likely to increase the recruitment of directors with reputations for being active in exercising control over managers. On the other hand, nonexistence of nominating committees or presence of weak nominating committees under the influence of the CEO decouple directors' reputations for being active in controlling management from the likelihood of obtaining new appointments. Practitioner/Policy Implications: This study offers insights to policy makers interested in increasing the efficiency of the labor market for directors. More specifically, it highlights the conditions under which directors with a reputation of being active in increasing control over management are likely to be rewarded by the labor market for directors. These conditions include (1) the creation of a nominating committee; (2) exclusion of the CEO from this committee and (3) domination of this committee by outside directors

Female Institutional Directors on Boards and Firm Value

The aim of this research is to examine what impact female institutional directors on boards have on corporate performance. Previous research shows that institutional female directors cannot be considered as a homogeneous group since they represent investors who may or may not maintain business relations with the companies on whose corporate boards they sit. Thus, it is not only the effect of female institutional directors as a whole on firm value that has been analysed, but also the impact of pressure-resistant female directors, who represent institutional investors (investment, pension and mutual funds) that only invest in the company, and do not maintain a business relation with the firm. We hypothesize that there is a non-linear association, specifically quadratic, between institutional and pressure-resistant female directors on boards and corporate performance. Our results report that female institutional directors on boards enhance corporate performance, but when they reach a certain threshold on boards (11.72 %), firm value decreases. In line with female institutional directors, pressure-resistant female directors on boards also increase firm value, but only up to a certain figure (12.71 % on boards), above which they have a negative impact on firm performance. These findings are consistent with an inverted U-shaped relationship between female institutional directors and pressure-resistant female directors and firm performance