Better than independent: the role of minority directors on bank boards

Barry, Thierno; Lepetit, Lætitia; Strobel, Frank; Tran, Thu Ha

doi:10.2139/ssrn.2788514

Cited by 4 publications

(1 citation statement)

References 81 publications

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“…More recently, Moscariello et al (2019), by examining a sample of non-financial Italian firms from 2007 to 2012, find supporting evidence about a positive relationship between the proportion of minority directors and firm value. Barry et al (2018) find a positive relationship between board structures that include directors related to minority shareholders and market valuation of banks with concentrated ownership.…”

Section: Background and Hypothesismentioning

confidence: 82%

The relationship between minority directors and earnings management: an empirical analysis in the Italian institutional setting

Fera

Moscariello

Pizzo

et al. 2022

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Purpose Although the previous literature considers independent directors as an internal mechanism for good corporate governance and higher financial disclosure quality, in contexts characterized by high ownership concentration, they may lack the mandate, the incentives and the ability to be an effective monitoring mechanism. Therefore, this study aims to focus on minority directors and investigate their impact on the earnings management activities for firms with concentrated ownership structures. Design/methodology/approach As the slate voting system is a peculiar feature of Italian corporate governance regulations, which gives minority shareholders the right to appoint at least one member of the board of directors (minority directors), this paper carries out a quantitative empirical analysis based on a sample of non-financial companies listed on the Italian Stock Exchange to test the role played by minority directors in increasing incentives towards higher financial reporting quality. Findings Robust to different model specifications, including the endogeneity test, empirical findings show a negative relationship between minority directors and earnings management, while no relationship holds between the latter and independent directors, suggesting that minority directors might promote greater directors’ accountability than independent directors in highly concentrated ownership structures. Originality/value Relying on the empirical findings, this paper offers new insights on a peculiar internal corporate governance mechanism related to one of the most debated issues among financial market practitioners and regulators, namely, the protection of minority shareholders. Moreover, this paper offers new insights for academics and practitioners on a peculiar governance mechanism that could soon be widely adopted.

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Section: Background and Hypothesismentioning

confidence: 82%

The relationship between minority directors and earnings management: an empirical analysis in the Italian institutional setting

Fera

Moscariello

Pizzo

et al. 2022

View full text Add to dashboard Cite

show abstract

Corporate governance and ethical culture: Do boards matter?

Silveira

2021

Rev Manag Sci

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Minority directors: A review of determinants and consequences and suggestions for future research

Fera¹,

Salzillo²,

Cantone³

2022

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In contexts characterised by high ownership concentration, an important corporate governance issue is represented by the so-called “principal–principal conflict”. Indeed, the separation between control rights and cash flow rights, the widespread use of control-enhancing mechanisms, and the concentration of voting rights can generate significant costs related to the potential appropriation of private benefits of control. In such contexts, independent directors as an internal mechanism for good corporate governance practices may lack the mandate, the incentives, and the ability to be an effective monitoring mechanism. For these reasons, academics have recently started focusing on minority directors (i.e., directors directly appointed by minority shareholders) as a mechanism to promote greater directors’ accountability and ease tensions between corporate controllers and outside investors. Relying on the preliminary evidence of this research strand, the aim of this paper is to propose a systematization of determinants and consequences related to the appointment of minority directors. As for the determinants, previous literature turns out that the appointment of minority directors mainly depends on internal corporate governance and ownership structure characteristics. As for the consequences, previous studies highlight an overall positive impact of minority directors on corporate governance practices, financial performance, corporate transparency, and financial reporting quality. Therefore, this paper is of interest to academics, as well as practitioners and regulators, as it provides an academic framework related to the appointment of minority directors on which insights for future developments depend

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Better than independent: the role of minority directors on bank boards

Cited by 4 publications

References 81 publications

The relationship between minority directors and earnings management: an empirical analysis in the Italian institutional setting

The relationship between minority directors and earnings management: an empirical analysis in the Italian institutional setting

Corporate governance and ethical culture: Do boards matter?

Minority directors: A review of determinants and consequences and suggestions for future research

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