John Nowland

Optimal Board Monitoring in Family-owned Companies: Evidence from Asia

We propose that high levels of monitoring are not always in the best interests of minority shareholders. In family-owned companies the optimal level of board monitoring required by minority shareholders is expected to be lower than other companies. This is because the relative benefits and costs of monitoring are different in family-owned companies. At moderate levels of board monitoring, we find concave relationships between board monitoring variables and firm performance for family-owned companies but not for other companies. The optimal level of board monitoring for our sample of Asian family-owned companies equates to board independence of 38%, separation of the Chairman and CEO positions and establishment of audit and remuneration committees. Additional testing shows that the optimal level of board monitoring is sensitive to the magnitude of the agency conflict between the family group and minority shareholders and the presence of substitute monitoring. The results confirm that more monitoring is not always associated with better performance. However, the board governance practices of family-owned companies are still well below the identified optimal levels.

Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements

Around the world, policy makers are mandating gender quotas for boards of publicly-traded firms. Since the benefits and costs of these quotas accrue to shareholders, it is important to see how they react to the appointment of female directors. Using data on mandatory announcements of new director appointments, we find that the gender of directors appears to be value-relevant. On average, shareholders value additions of female directors more than they value additions of male directors. Firms with workplace practices in place to promote workplace equality appear to benefit the most from boardroom gender diversity. This suggests that appointing female directors may help resolve value-decreasing stakeholder conflicts.

The Effect of National Governance Codes on Firm Disclosure Practices: Evidence from Analyst Earnings Forecasts

This study examines whether voluntary national governance codes have a significant effect on company disclosure practices. Two direct effects of the codes are expected: 1) an overall improvement in company disclosure practices, which is greater when the codes have a greater emphasis on disclosure; and 2) a leveling out of disclosure practices across companies (i.e., larger improvements in companies that were previously poorer disclosers) due to the codes new comply-or-explain requirements. The codes are also expected to have an indirect effect on disclosure practices through their effect on company governance practices. The results show that the introduction of the codes in eight East Asian countries has been associated with lower analyst forecast error and a leveling out of disclosure practices across companies. The codes are also found to have an indirect effect on company disclosure practices through their effect on board independence. This study shows that a regulatory approach to improving disclosure practices is not always necessary. Voluntary national governance codes are found to have both a significant direct effect and a significant indirect effect on company disclosure practices. In addition, the results indicate that analysts in Asia do react to changes in disclosure practices, so there is an incentive for small companies and family-owned companies to further improve their disclosure practices.

Political and Government Connections on Corporate Boards in Australia: Good for Business?

While prior studies document the benefits of political connections in emerging markets, their value in developed markets is less certain. In this study, we examine the types of firms that have directors with political and government connections on their boards and the value of these connections to shareholders in Australia, a developed market with low levels of corruption and lobbying, and public funding of election campaigns. We find that directors with political and government connections hold 2.1% of listed company directorships (in 7.7% of listed companies) in Australia. After controlling for director and firm characteristics, we find the market reaction to the appointment of directors with political and government connections is significantly lower than other directors. This is particularly the case for former politicians whose political parties are not in power and who have less political experience. In summary, we find no evidence that political and government connections on corporate boards are particularly abundant or valuable to shareholders in Australia.

Do Derivatives Have a Role in the Risk-Shifting Behaviour of Fund Managers?

In this paper we examine the extent to which derivatives are used to affect the risk-shifting behaviour of Australian equity fund managers. We find, after periods of good and poor performance, the risk-shifting behaviour of fund managers is different between derivative users and non-users. Our results support the gaming and active competition hypotheses but there is little support for the cash flow hypothesis. The study also allows for a complex reporting environment by analysing data across three alternate time periods: the calendar year, financial year and quarterly frames. Given that our results are not consistent across time periods for users and non-users of derivatives, some caution in interpretation is required.

Political connections and earnings quality: How do connected firms respond to changes in political stability and government effectiveness?

The purpose of this study is to investigate how the earnings quality of politically connected firms is affected by changes in political stability and government effectiveness in a developing country.,This study uses a sample of 2,073 firm-year observations from 349 firms listed on the Indonesian Stock Exchange from 2003 to 2012 to examine how political stability and government effectiveness affect the earnings quality of politically connected firms, relative to non-politically connected firms. A two-stage model is used to address self-selection issues in the choice of firms to establish political connections.,This study finds that increased government effectiveness reduces the benefits of political connections, requiring politically connected firms to be more responsive to market pressures and resulting in higher earnings quality. However, increased political stability enhances the certainty of benefits from political connections, reducing the need for politically connected firms to respond to market pressures and resulting in lower earnings quality.,For policymakers, these results indicate that different dimensions of political and economic development can affect the incentives of firms with political connections in different ways.,This study finds that the earnings quality of politically connected firms increases as government effectiveness improves, but it decreases as the political environment becomes more stable.

The Effectiveness Of Corporate Governance Codes: Long-Term Analysis From East Asia

This study examines the effectiveness of corporate governance codes in four East Asian markets by investigating the timing and persistence of firm compliance with code recommendations. Over the period 1999 to 2009 we find a number of significant improvements in code compliance, but not all can be attributed to the introduction of code recommendations. We also provide evidence of the codes having unintended consequences — firms previously with higher board or committee independence reducing their independence to code recommendation levels. Our results suggest that code recommendations targeting the creation of new mechanisms (e.g., remuneration committees) have been effective but that policymakers need to be particularly careful when formulating code recommendations about existing governance practices.

Is there a Business Case for Female Directors? Evidence from the Market Reaction to All New Director Appointments

Around the world, policy makers are mandating gender quotas in the boardroom. Since the benefits and costs of quotas accrue to shareholders, it is important to see how they react to the appointment of female directors. Using unique data on new director appointments, we find that on average shareholders appear to value the addition of female directors. This suggests that tokenism is not the main reason firms appoint female directors. However, the stock price reaction varies with industry, firm and hiring board characteristics. Thus, some firms benefit more than others from the addition of female directors. We discuss potential policy implications of these findings.

‘Name and shame’ – director attendance disclosure and practice

ABSTRACT Three major director characteristics have been associated with board performance – independence, gender/gender diversity mix and multiple directorships. This study investigates the attendance practices of directors as a fourth director characteristic associated with director and board performance. It does so by investigating director attendance of listed companies where there is a full meeting attendance ‘roll-call’ disclosure regime, relative to a ‘brightline’ disclosure of attendance below 75%. Attendance data from Australia and the US are compared over the period 2001–2015. A comparison shows that Australian directors, on average, are 6 times more likely to attend fewer than 75% of their required board and committee meetings. This study provides previously undocumented analysis on the attendance practices of directors. The results have implications for the reporting framework of director attendance and suggest that in line with current regulatory thinking, a brightline approach has several policy advantages over a roll-call approach.