International Journal of Corporate Governance (8 papers in press)
Impact of Blockholder Promoters on Debt Financing of Indian firms
by Anuja Sethiya, Thenmozhi M
Abstract: We examine the effect of blockholder promoters on financing decisions of Indian firms. A fixed effect panel analysis of 13,131 observations during the period 2001-2017, confirm that, greater the promoter ownership, less the preference for leverage. However, the impact of promoter ownership on financing decisions varies with the type of blockholders. We find that the moderating effect of state-owned and private-foreign blockholders with promoter ownership is negatively associated with leverage, while family-owned blockholders with promoter ownership is positively associated with leverage. The study finds that the significance of agency cost II varies with the identity of blockholder promoters.
Keywords: promoter ownership; leverage; blockholder; state-owned; private-Indian; family-owned; private-foreign; agency cost.
Capital Contribution, Insider Ownership and Firm Performance:Evidence from Indian IPO firms
by Bhawana Jain, Sangeetha Gunasekar, Balasubramanian P.
Abstract: Several studies have explored the non-linear relationship between insider ownership and post-IPO firm performance, whereas the inter-relationship among pre-IPO cash contribution, insider ownership and firm performance has not been investigated. Our study attempts to do so for an emerging economy, India using panel data of 199 IPO firms for the sample period of 2007 to 2018. Results indicate that there is a non-linear relationship between insider ownership and post-IPO firm performance with lower ownership levels indicating positive impact and higher ownership levels indicating negative impact. Further, the study finds that pre-IPO cash contribution of owners has a long term increasing negative impact, though these results significantly differ across varying levels of insider ownership. The study controls for endogeneity in the variables.
Keywords: Insider ownership; capital contribution; firm performance; initial public offering; promoter ownership.
DOES OWNERSHIP STRUCTURE INFLUENCE THE RELATIONSHIP BETWEEN FIRMS POLITICAL CONNECTIONS AND FINANCIAL PERFORMANCE?
by Saidatou Dicko
Abstract: The main aim of our study is to learn whether ownership structure moderates the relationship between firms political connections and financial performance. After investigating the S&P/TSX Composite Index of Canadians companies for the 2010 to 2015 period inclusive, we conclude that on a long-term basis (six years of analysis), firms political connections have a positive and significant effect on financial performance (when measured by ROA and Tobins Q), ownership concentration does not significantly influence financial performance indicators, and more important, ownership structure does not mediate or moderate the relationship between political connections and firm financial performance. However, firms are less profitable when politically connected through their executive members.
Keywords: Political connections; Companies; financial performance; firm; ownership structure; S&P/TSX.
Testing the Demand for Monitoring and Advisory Roles of Independent Directors: A Case of Indian Corporate Boards
by Shivan Sarpal
Abstract: Research on Indian corporate governance has been largely relied on the monitoring role of corporate boards and thus, is devoid of another important role i.e. advisory role performed by them. Prevalence of concentrated corporate ownership structures, impact of repeatedly occurring corporate scams, different firm-sizes and situational contexts have further emphasized the monitoring as well as advisory board functioning. Moreover, in lieu of scrimpy research on this issue in India, the present analysis makes an endeavor to fill the research gap of testing simultaneously the relevance of monitoring and advisory roles of corporate boards by specifically focusing on investigating the linkages between several firm specific factors (firm complexity, monitoring and advising costs, private benefits, CEO influence) and board independence. The intent of the present analysis is to figure out whether the related arguments established in the research worldwide are also relevant in Indian institutional context. Overall the analysis maintains that board independence is significantly determined by the level of firm complexity and private benefits in the directions consistent with the past literature. However, the findings of monitoring and advising costs, and CEO influence hypotheses are opposite to the expectations derived from the concerned literature. These variations can be attributed to unique environment and different institutional contexts under which the firms are operated. Moreover, the analysis has also adduced the importance of firm size in explaining the effects of firm specific factors on the corporate board independence for small and large firms. The findings produced herein offer suitable directions which amplify the scope of future research on the untouched but affiliated issues in Indian corporate governance literature.
Keywords: Board Independence; Firm complexity; Costs of Monitoring and Advising; Private Benefits; CEO Influence; Firm Size; Corporate Governance; Indian Context; Small Firms; Large Firms.
MANDATORY FINANCIAL REPORTING FREQUENCY AND MARKET EFFICIENCY (EVIDENCE FROM MALAYSIA)
by BeeWah Ooi
Abstract: This study examines the effectiveness of legal reform to increased reporting frequency on the level of transparency and market efficiency. There is no such study that employed a difference-in-differences model with propensity score matching to assess a change of the change in information content and timeliness in Malaysian context. The effectiveness of legal reform in reporting frequency enhances the level of corporate governance and strengthens the shareholders right protection. Difference-in-differences is chosen because of its capability in offsetting the effect of other legal reforms or other factors that occur over the test period. Artificial window is invented for longitudinal analysis. The analysis shows significant effect of this legal reform on the increases of the information content and timeliness. This main finding is a contribution to the financial disclosure and regulatory literature. The results suggest that there are gains from requiring quarterly disclosure.
Keywords: Legal Reform; Reporting frequency; Difference-in-differences; Market efficiency; Transparency; Information Content and Timeliness.
Predicting the Threat of Shareholder Activism among Indian Firms: Development and Application of Shareholder Activism Prediction Model (SAPM)
by Ajaz Ul Islam, Sanjay Kumar Mishra, Vikas Srivastava
Abstract: Investigating voting strategies of mutual fund companies, the study developed shareholder activism prediction model (SAPM). Binary panel probit model was used to test the hypothesized model on a sample of firms subjected to shareholder activism (SA) during the period of 2008-09 to 2014-15 in India. The SAPM model was found to be adequate. Specifically, governance, related party transactions, remuneration and corporate social responsibility related specific demands were found to significantly predict the probability of threat of SA faced by the sample firms. Subsequently, SAPM model was applied to predict the probability of threat of SA for a sample of S&P BSE 500 companies in India. The findings were utilized to predict the probability that at least one firm in the industry will be subjected to SA for the period FY 2013-14 to 2015-16. The predictive accuracy of the model was tested using the observed data for the same period. The findings of binary panel logit model validated the robustness of SAPM
Keywords: shareholder activism; corporate governance; related party transactions; panel probit.
Board Independence and Disclosure Quality of the UK Investor Relation Magazine Award (IRMA) Winning Public Firms: A Matched-pair Analysis
by Omar Farooque
Abstract: We examine the interactions between board independence and disclosure quality for the UK Investor Relation Magazine Award (IRMA) winning firms being experimental sample, and control sample of non-winning firms. We provide strong evidence of positive reciprocal relationships between board independence and disclosure quality after controlling for a set of internal and external governance variables. We further document complementary effects of some internal and external governance variables on disclosure quality. With regard to matched-pair sample we find little difference between IRMA winning and non-winning firms in terms of their disclosure quality and governance practices, except higher (lower) coefficient value and stronger (smaller) effect of board independence (disclosure quality) on disclosure quality (board independence) for former firms than latter firms. These findings have policy implications for companies/regulators/stakeholders to take appropriate strategies in firms' governance and disclosure settings since the selection of flexible disclosure choice is persuasive to the extent of board independence.
Keywords: Board Independence; Disclosure Quality; Reciprocal Relationship; Investor Relation Magazine Award; UK Public Firms; Matched-pair Sample.
Womens Leadership, Performance and Governance in Lebanese Microfinance Institutions
by Miriam Aziz, Charbel Salloum, Laura Salloum, Ruba Younes Mhanna, Quentin Lefebvre
Abstract: The aim of this study is to analyze the relationship between womens leadership, performance and governance in Lebanese microfinance institutions (MFIs). The microfinance industry serves to highlight the significant relationship between womens leadership, performance and governance. The purpose of this study is to understand the effect of womens leadership on the governance and performance of MFIs due to their oriented mission toward women and poor families, their entrepreneurial nature and the high percentage of women leaders within the institutions. Using a regression analysis among a convenient sample of 51 MFIs over 3 years that contains 105 observations, our results suggest that CEO duality is more common when women occupy leadership positions, and there are fewer board meetings. Moreover, financial performance and governance are perhaps jointly related, although the correlation table does not show evidence of such a relationship in the case of MFIs. Our study provides important insights regarding womens leadership practices in Lebanon and more importantly, helps us to understand how entrepreneurial nature could lead to better governance.
Keywords: Women’s Leadership; Financial Performance; Corporate Governance; and Microfinance Institutions.