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CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE

Year 2012, Volume: 4 Issue: 2, 129 - 139, 01.12.2012

Rebeca García Ramos Myriam García Olalla

Abstract

The effectiveness of boards of directors is addressed in a context of weak legal protection using a sample of listed firms from Southern. A cross-country and panel data design is used, taking into account the endogeneity problem arising in studies of corporate governance. The results show that there is an inverted Ushaped relationship between independent directors and firm performance which allows us to identify the optimal level of independent directors on the board. Moreover, the study determines whether there are significant differences in the optimal level of independent directors depending on the family identity of the large shareholder and whether any such differences are correlated with firm performance. This article has implications for practitioners because the results fail to support good the governance recommendation suggesting that more independent directors are always in the best interest of investors

Keywords

corporate governance independent directors weak investor protection large family shareholders performance endogeneity

References

  • Adams RB and Ferreira D (2007). A theory of friendly boards. The Journal of Finance, 62(1): 217-250.
  • Anderson RC and Reeb DM (2003). Founding-family ownership and firm performance: Evidence from the SandP500. The Journal of Finance, 58(3): 1301-1328.
  • Andrés P, Azofra V and López F (2005). Corporate boards in OECD countries: size, composition, functioning and effectiveness. Corporate Governance: An International Review, 13(2): 197-210.
  • Bammens Y, Voordeckers W and Van Gils A (2010). Boards of directors in family businesses: a literature review and research agenda. International Journal of Management Reviews, DOI: 10.1111/j.1468-2370.2010.00289.x
  • Baysinger BD and Butler HN (1985). Corporate governance and the board of directors: performance effects of changes in board composition. Journal of Law, Economics, and Organization, 1:101-124.
  • Bhagat S and Bolton B (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3): 257-273.
  • Blundell R and Bond S (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87: 111-143.
  • Cabrera-Suárez K, Saá-Pérez P and García-Almeida D (2001). The succession activity from a resource and knowledge based view of the family firm. Family Business Review, 14(1): 37-48.
  • Cheng S (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87: 157-176.
  • Coles JL, Daniel ND and Naveen L (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2): 329-356.
  • Daily CM and Dalton DR (1993). Board of directors leadership and structure: control and performance implications. Entrepreneurship Theory &Practice, 17: 65-81.
  • Dalton D, Daily C, Ellstrand A and Johnson J. (1998). Board composition, leadership structure, and financial performance: Meta-analytic reviews and research agenda. Strategic Management Journal, 19: 269-291.
  • Dalton D, Daily C, Johnson JL and Ellstrand A (1999). Number of directors and financial performance: a meta-analysis. Academy of Management Journal, 42(6): 674-686.
  • Donaldson L and Davis J (1994). Boards and company performance-research challenges the conventional wisdom. Corporate Governance: An International Review, 2: 151-160.
  • Finegold D, Hecht D and Benson G (2007). Corporate boards and company performance: Review of research in light of company reforms. Corporate Governance: An International Review, 15: 865-878.
  • García-Ramos, R. and García-Olalla, M, (2011). Board characteristics and firm performance in public founder- and nonfounder-led family Business. Journal of Family Business Strategy, 2(4): 220-231.
  • Hermalin BE and Weisbach MS (1991). The effect of board composition and direct incentives on firm performance, Financial Management, 20: 101-112.
  • Hermalin BE and Weisbach MS (2003). Board of directors as an endogenously determined institution. Federal Reserve Bank of New York Economic Policy Review, 9: 1- 20.
  • Hillman AJ and Dalziel TD (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. The Academy of Management Review, 28: 383-396.
  • Jackling B and Johl S (2009). Board structure and firm performance: Evidence from India’s top companies. Corporate Governance: An International Review, 17: 492-509.
  • Jaskiewicz P and Klein SB (2007). The impact of goal alignment on board composition and board size in family businesses. Journal of Business Research, 60(10): 1080-1089.
  • Jensen MC and Meckling WH (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305-360.
  • Lane S, Astrachan J, Keyt A and McMillan K (2006). Guidelines for family business boards of directors. Family Business Review, 19 (2): 147-167.
  • La Porta R, Lopez-de-Silanes F and Shleifer A (1999). Corporate ownership around the world. The Journal of Finance, 54(2): 471-517.
  • McVey H, Draho J and Stanley M (2005). U.S. family-run companies- they may be better than you think. Journal of Applied Corporate Finance, 17(4): 133-144.
  • Miller D and Le Breton-Miller I (2006). Family Governance and Firm Performance: Agency, Stewardship and Capabilities. Family Business Review, 19 (1): 73-87.
  • Pfeffer J (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative Science Quarterly, 17: 218-229.
  • Raheja CG (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40: 283-206.
  • Schulze WS, Lubatkin MH, Dino RN and Bucchold AK (2001). Agency relationship in family firm: Theory and evidence. Organization Science, 12(2): 9-116.
  • Shleifer A and Vishny R (1997). A survey of corporate governance. Journal of Finance, 52: 737-783.
  • Villalonga B and Amit R (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2): 385-417.

Year 2012, Volume: 4 Issue: 2, 129 - 139, 01.12.2012

Rebeca García Ramos Myriam García Olalla

Abstract

References

  • Adams RB and Ferreira D (2007). A theory of friendly boards. The Journal of Finance, 62(1): 217-250.
  • Anderson RC and Reeb DM (2003). Founding-family ownership and firm performance: Evidence from the SandP500. The Journal of Finance, 58(3): 1301-1328.
  • Andrés P, Azofra V and López F (2005). Corporate boards in OECD countries: size, composition, functioning and effectiveness. Corporate Governance: An International Review, 13(2): 197-210.
  • Bammens Y, Voordeckers W and Van Gils A (2010). Boards of directors in family businesses: a literature review and research agenda. International Journal of Management Reviews, DOI: 10.1111/j.1468-2370.2010.00289.x
  • Baysinger BD and Butler HN (1985). Corporate governance and the board of directors: performance effects of changes in board composition. Journal of Law, Economics, and Organization, 1:101-124.
  • Bhagat S and Bolton B (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3): 257-273.
  • Blundell R and Bond S (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87: 111-143.
  • Cabrera-Suárez K, Saá-Pérez P and García-Almeida D (2001). The succession activity from a resource and knowledge based view of the family firm. Family Business Review, 14(1): 37-48.
  • Cheng S (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87: 157-176.
  • Coles JL, Daniel ND and Naveen L (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2): 329-356.
  • Daily CM and Dalton DR (1993). Board of directors leadership and structure: control and performance implications. Entrepreneurship Theory &Practice, 17: 65-81.
  • Dalton D, Daily C, Ellstrand A and Johnson J. (1998). Board composition, leadership structure, and financial performance: Meta-analytic reviews and research agenda. Strategic Management Journal, 19: 269-291.
  • Dalton D, Daily C, Johnson JL and Ellstrand A (1999). Number of directors and financial performance: a meta-analysis. Academy of Management Journal, 42(6): 674-686.
  • Donaldson L and Davis J (1994). Boards and company performance-research challenges the conventional wisdom. Corporate Governance: An International Review, 2: 151-160.
  • Finegold D, Hecht D and Benson G (2007). Corporate boards and company performance: Review of research in light of company reforms. Corporate Governance: An International Review, 15: 865-878.
  • García-Ramos, R. and García-Olalla, M, (2011). Board characteristics and firm performance in public founder- and nonfounder-led family Business. Journal of Family Business Strategy, 2(4): 220-231.
  • Hermalin BE and Weisbach MS (1991). The effect of board composition and direct incentives on firm performance, Financial Management, 20: 101-112.
  • Hermalin BE and Weisbach MS (2003). Board of directors as an endogenously determined institution. Federal Reserve Bank of New York Economic Policy Review, 9: 1- 20.
  • Hillman AJ and Dalziel TD (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. The Academy of Management Review, 28: 383-396.
  • Jackling B and Johl S (2009). Board structure and firm performance: Evidence from India’s top companies. Corporate Governance: An International Review, 17: 492-509.
  • Jaskiewicz P and Klein SB (2007). The impact of goal alignment on board composition and board size in family businesses. Journal of Business Research, 60(10): 1080-1089.
  • Jensen MC and Meckling WH (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305-360.
  • Lane S, Astrachan J, Keyt A and McMillan K (2006). Guidelines for family business boards of directors. Family Business Review, 19 (2): 147-167.
  • La Porta R, Lopez-de-Silanes F and Shleifer A (1999). Corporate ownership around the world. The Journal of Finance, 54(2): 471-517.
  • McVey H, Draho J and Stanley M (2005). U.S. family-run companies- they may be better than you think. Journal of Applied Corporate Finance, 17(4): 133-144.
  • Miller D and Le Breton-Miller I (2006). Family Governance and Firm Performance: Agency, Stewardship and Capabilities. Family Business Review, 19 (1): 73-87.
  • Pfeffer J (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative Science Quarterly, 17: 218-229.
  • Raheja CG (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40: 283-206.
  • Schulze WS, Lubatkin MH, Dino RN and Bucchold AK (2001). Agency relationship in family firm: Theory and evidence. Organization Science, 12(2): 9-116.
  • Shleifer A and Vishny R (1997). A survey of corporate governance. Journal of Finance, 52: 737-783.
  • Villalonga B and Amit R (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2): 385-417.
There are 31 citations in total.

Details

Other ID JA27SB67ET
Journal Section Articles
Authors

Rebeca García Ramos This is me

Myriam García Olalla This is me

Publication Date December 1, 2012
Published in Issue Year 2012 Volume: 4 Issue: 2

Cite

APA García Ramos, R., & Olalla, M. G. (2012). CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE. International Journal of Business and Management Studies, 4(2), 129-139.
AMA García Ramos R, Olalla MG. CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE. IJBMS. December 2012;4(2):129-139.
Chicago García Ramos, Rebeca, and Myriam García Olalla. “CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE”. International Journal of Business and Management Studies 4, no. 2 (December 2012): 129-39.
EndNote García Ramos R, Olalla MG (December 1, 2012) CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE. International Journal of Business and Management Studies 4 2 129–139.
IEEE R. García Ramos and M. G. Olalla, “CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE”, IJBMS, vol. 4, no. 2, pp. 129–139, 2012.
ISNAD García Ramos, Rebeca - Olalla, Myriam García. “CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE”. International Journal of Business and Management Studies 4/2 (December 2012), 129-139.
JAMA García Ramos R, Olalla MG. CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE. IJBMS. 2012;4:129–139.
MLA García Ramos, Rebeca and Myriam García Olalla. “CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE”. International Journal of Business and Management Studies, vol. 4, no. 2, 2012, pp. 129-3.
Vancouver García Ramos R, Olalla MG. CORPORATE GOVERNANCE, WEAK INVESTOR PROTECTION AND FINANCIAL PERFORMANCE IN SOUTHERN EUROPE. IJBMS. 2012;4(2):129-3.