Jan'20
The IUP Journal of Corporate Governance
Focus
The prevailing times pose a tough challenge, while the ideas about the governance should be looked into with wider consent, consensus and participation. People at times have disagreeing perspectives, for example, they differ in their stand on basic matters such as the purpose of corporation, the shareholders' rights and role as well as the composition of the corporate board and the way in which corporate performance is measured. The problem arises while deciding whose interest needs to be considered. Authorities prefer weighing shareholders' financial returns; on the contrary, others voice out shareholders' interest in executive compensation and corporate strategy, which should be respected and cannot be ignored. Listed companies fit into this aforementioned scenario, as they are closely monitored by regulatory authorities and interested agencies, thus driving the emphasis on to the role of board structure, diversity and composition and related aspects, on which the present issue focuses.
In the first paper, "Board Composition and Firm Performance: The Case of FTSE All Shares", the authors, Imad Chbib and Mike Page, examine the association between board size and board independence, and firm performance. The investigation premise is confined to UK FTSE All Shares non-financial firms. The population of the study comprises all non-financial companies listed on the FTSE All Shares Index between January 1, 2005 and December 31, 2010. The results reveal high significant negative association between board size and
Tobin's Q. The association between the proposed variables is sufficiently backed by literature. The findings are in line with the previous studies.
In the second paper, "Board Structure, Board Diversity and Corporate Governance: Evidence from Listed Indian Companies", the authors, Sunaina Kanojia, Jai Prakash Sharma and Shweta Jain, have emphasized upon the impact of board structure on financial performance. Board structure includes board size, board meeting, CEO duality, CEO busyness and board composition. The relationships were supported by the literature on which the study focuses. The study considered 200 companies listed on S&P BSE index, excluding banking and financial institutions, for eight years from 2009 to 2017. The authors suggest that CEO on the board of other companies should be confined to two as busyness seems to mitigate the effectiveness.
In the third paper, "Board Characteristics, Institutional Shareholding and Banks' Performance: Evidence from Indian Banking Sector", the authors Ketan Mulchandani, Kalyani Mulchandani and Megha Jain, have attempted to evaluate the impact of corporate governance measures have on banks' financial performance. The study captured 10 years' data of 29 banks for the period of 2008-09 to 2017-18. The study advocates CEO duality and institutional ownership have significant impact upon return on assets, while board size and board meetings do not have much influence on performance measures. It also brings in perspective wherein performance of bank is independent of the size of the board.
Consulting Editor
| Article | Price (₹) | ||
| Board Composition and Firm Performance: The Case of FTSE All Shares |
100
|
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| Board Structure, Board Diversity and Corporate Governance: Evidence from Listed Indian Companies |
100
|
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| Board Characteristics, Institutional Shareholding and Banks' Performance: Evidence from Indian Banking Sector |
100
|
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Board Composition and Firm Performance: The Case of FTSE All Shares
This paper investigates the impact of the composition of board of directors on firm performance using UK FTSE All-Shares non-financial firms for the period before and during the latest global financial crisis. The main hypotheses tested were whether board composition, namely, board size and board independence, has an impact on firm performance, using Tobin's Q (TQ) and Return on Assets (ROA). Univariate and multivariate (including 2SLS regression) were carried out to test these hypotheses. The results suggested a high positive association between board size and TQ, and insignificant association between board size and ROA, while some evidence was found for the impact of an independent board on firm performance. The results also found a negative association between blockholdings and performance during the financial crisis in 2008, whilst an insignificant relationship was observed before 2008. The paper contributes to prior research by providing year by year analysis to the relationship between board composition and performance prior to and during the financial crisis and considering the impact of large shareholders (in particular institutional shareholders) on mitigating agency costs.
Board Structure, Board Diversity and Corporate Governance: Evidence from Listed Indian Companies
Board structure and board diversity being a critical element in the context of corporate governance has been expounded in the paper with evidence emerging from the index constructed for large listed Indian companies and the latter's impact on the financial performance measured in terms of Tobin's Q. Further, Ordinary Least Square (OLS) Regression analysis has been done by considering board composition, board size, board meetings, CEO duality and CEO busyness with financial performance parameters. The evidence collated from the empirical tests indicates positive association between board structure index and financial performance. This suggests that well-governed companies having well-structured boards are highly valued and their financial statements exhibit better performance over the long term. Also, there is a positive relationship among board diversity index and board size and corporate financial performance. However, a negative association has been observed between number of board meetings and firm's financial performance measures, indicating that investors immediately need a corporate governance index for listed companies, which highlights the corporate governance parameters leading to buying, holding and selling decisions of investment.
Board Characteristics, Institutional Shareholding and Banks' Performance: Evidence from Indian Banking Sector
Good governance practices enhance monitoring and therefore BASEL III has also given importance to corporate governance. The Indian regulatory body of banks, the Reserve Bank of India (RBI) has also provided a "fit and proper" framework for the selection of board. The recent scams in the banking sector have also necessitated good governance practices in India and across the world. Therefore, this study is an attempt to assess the effect of corporate governance measures on the financial performance of banks listed on BSE 500. Panel data analysis is performed on the data. Dependent variable is return on assets, whereas proxy measures are taken for independent variables: board's composition, board's leadership and board's activity. Institutional ownership is also taken as an independent variable. The model incorporated control variables which have been popularly listed in the past literature. The results indicate that size of the board and number of board meetings held in a year do not influence return on assets, whereas proportion of independent directors and female directors on board, CEO duality and institutional ownership significantly and positively influence return on assets. In control variables, size and loan amount are significant variables. Asset size has negative coefficient, whereas loan size has positive coefficient.