Corporate governance: measurement and determinant analysis

Abstract

PurposeThis paper aims to investigate the determinants of good governance in the US firms.Design/methodology/approachThe data are taken from a sample of 624 US listed and non‐financial firms for the period of 1994‐2003. Four indices were constructed that summarize the governance quality: one indice for the board of directors, another one for the board committees, a third one for the audit committee, and a fourth representing an overall or total index. Multiple regressions analyses are used in the study to find the determinants of strong governance.FindingsThe empirical results show statistically significant and positive associations between each governance index (exception to board index) and firm size, investment opportunities, intangible assets and directors and officers ownership. Furthermore, institutional ownership and external financing needs are positively related to each governance index considered. However, growth opportunities and performance have no significant effect on governance quality.Research limitations/implicationsOther corporate governance mechanisms could be considered (transparency and disclosure, anti‐takeover provisions and shareholder's rights).Originality/valueThis paper adds evidence to the important debate about corporate governance ratings. It gives a most comprehensive analysis to date in term of sample size and breath coverage. This paper also offers a new contribution to the debate on the determinants of good governance by isolating the effects of firm characteristics on the board of directors from the effect on compensation and nominating committees and from the effect on audit committee.

The Effect of Board of Directors Characteristics, Audit Committee Characteristics and Executive Committee Characteristics on Firm Performance in Oman: An Empirical Study

“…The audit committee independence-firm performance relationship is expected to be positive. Nevertheless, only few studies that investigated this relation in developed countries (Dey, 2008;Khanchel, 2007) and developing countries (Abdullah et al, 2008;Nuryanah & Islam, 2011;Saibab & Ansari, 2011;Swamy, 2011;Yasser et al, 2011) found a positive result.…”

“…However, some studies in developed countries reported a positive relationship (e.g. Bauer et al, 2009;Khanchel, 2007;Premuroso & Bhattacharya, 2007;Reddy et al, 2010) as well as some of those conducted in the developing countries (e.g. Black & Kim, 2007;Black et al, 2003;Heenetigala & Armstrong, 2011;Kyereboah-Coleman, 2007;Obiyo & Lenee, 2011;Swamy, 2011).…”

“…Owing to the significance of the board effectiveness to the firm performance, variation studies were carried out to examine this relationship in the context of developed countries. The association between board meetings and performance of the firm was reported to be positive in such context (Khanchel, 2007;Lin, Ma and Su, 2002) (Khanchel, 2007;Lin, Ma & Su, 2002) and in the developing states such as, Hasnah (2009), Hsu andPetchsakulwong (2010), Kang and Kim (2011) and Khan and Javid (2011). While some studies have confirmed the negative effect of the board meeting on firm performance in both developed such as García-Sánchez (2010) and Qinghua et al (2007) and developing countries (Hasnah, 2009;Mohd, 2011).…”

“…Furthermore, Vafeas (2000) stated that frequency of board meetings is a significant activity because as the board meetings increase in frequency, the more the firm will improve its operating performance. Thus, boards should be inclined to increase frequency of meetings if the situation calls for high control and oversight (Khanchel, 2007;Shivdasani & Zenner, 2002).…”

Effects of corporate governance on fraud prevention. (c2016)

“…Companies who implement corporate governance in its structures are less likely to face fraudulent financial activities (Belay, 2007). Global corporations became more interested about corporate governance topic (Khanchel, 2007). It was concluded by Campos & Coricelli (2002) that in Eastern Europe and Africa, investors are willing to pay a premium up to 30% for corporations having good corporate governance.…”