Mahmud Hossain

Corporate Governance in New Zealand: The Effect of the 1993 Companies Act on the Relation between Board Composition and Firm Performance

The aim of this paper is to explore the efficacy of monitoring by the board of directors, and especially independent outside directors, in New Zealand. The Companies and Financial Reporting Acts of 1993 provide a unique opportunity to examine if legislation directly designed to increase the fiduciary responsibility of the board had a discernible impact on the relationship between independent outside board representation and firm performance. We find that the effects of the Companies Act and related legislation are relatively benign in so far as influencing the relationship between firm performance an outside board representation is concerned. The legislation did not seem to enhance or weaken the positive relationship between outside board representation and firm performance.

Determinants of board composition in New Zealand: a simultaneous equations approach

Abstract This paper models the composition of New Zealand boards of directors as a function of alternative corporate governance mechanisms, other control variables, and legislation designed to improve corporate monitoring. We find evidence that board composition and firm performance jointly impact each other in a positive manner. We document that the proportion of outsiders on the board is positively related to board size and is negatively related to future growth, nonlinearly related to inside ownership, and is not related to debt and ownership concentration. Firm performance is inversely related to firm size, positively impacted by future growth, and appears to be nonlinearly related to insider ownership. Passage of the new Companies Act in 1994 is associated with increased representation of outside board members. However, this increase is not associated with enhanced firm performance which may be a consequence of increased liability placed on directors.

The Investment Opportunity Set and the Voluntary Use of Outside Directors: New Zealand Evidence

Abstract This study examines whether the composition of boards of directors differs between high and low growth firms. Based on prior research, we hypothesise that firms with greater investment opportunities require more monitoring because managers in these firms have more discretion both in selecting investments and allocating resources between investments. Because outside directors can be more effective monitors than inside directors, we predict that outsiders will make up a larger proportion of the board in high growth firms than in low growth firms. Using a cross-sectional sample of 77 New Zealand firms, our results suggest that the percentage of outside directors is related to growth for two of the four measures of investment opportunities which we employ. As expected, the percentage of outside directors is also related to a composite measure of investment opportunities.

Board Composition in New Zealand: An Agency Perspective

This paper looks at board composition determinants in New Zealand. We document that the proportion of outside board members is inversely related to insider equity ownership supporting the notion that these variables are substitute mechanisms in controlling agency problems. We also find that board composition is directly related to debt, ownership concentration, and profitability and inversely related to growth and firm size. There is evidence that firms with influential CEOs have lower outside board representation. Finally, we document that the passage of the legislation reforming company and securities laws in 1993 was associated with increased outside members on the board. Copyright Blackwell Publishers Ltd 2002.

Corporate Governance, Legal Environment, and Auditor Choice in Emerging Markets

In this study, we examine the effect of firm-level governance on the firms choice of an external auditor. Further, we test how the relation between corporate governance and auditor choice may be affected by the strength of legal environment. The results show that firm-level governance scores are positively related to the firms auditor choice. This association is strengthened by country-level legal protection. Specifically, the positive association between auditor choice and the firm-level governance scores is weaker (stronger) in a low (high) legal environment. These findings are robust after controlling for determinants that were found to be significant in earlier research. Overall, our results suggest that the benefits arising from the employment of high-quality auditors are likely to be greater when legal environment is stronger because both auditors and firms are subject to more severe legal punishments for opportunistic behavior.

Market Risk Disclosures and Investment Efficiency: International Evidence from the Gulf Cooperation Council Financial Firms

This study examines the association between market risk disclosures (MRDs) and the investment efficiency of financial firms from six emerging markets in the Gulf Cooperation Council (GCC) region. Based on a sample of 553 firm-year observations over the 2007–2011 period, we find that MRDs are significantly and negatively associated with both under-investment and over-investment and that this association is more pronounced for larger firms. We also find that the association between MRDs and under-investment is moderated during periods of economic distress such as the Global Financial Crisis of 2008 and that the association between MRDs and over-investment is magnified during periods of reduced financial distress. Our results are consistent with the idea that MRDs reduce information asymmetry, which ultimately improves investment efficiency. We contribute to the literature in an emerging market context by providing empirical evidence on the association between MRDs and investment efficiency across six emerging GCC capital markets. This study also fills a gap in the literature by providing evidence on the factors affecting the investment efficiency of financial firms.