Richard Bozec

Board structure and firm technical efficiency: Evidence from Canadian state-owned enterprises

Abstract The objective of the study is to analyze the board–performance relationship for a group of 14 Canadian SOEs. This context is unique because SOEs do not have major control devices other than the board. As the interaction effect, if any, between the board and other corporate governance structures is expected to be low, we do not have to fully control for the potential impact of different control devices, or to disentangle them completely from influencing board composition. The performance is also measured using data envelopment analysis (DEA), a linear programming method used for the first time in this research area. As such, this study contributes to the operational research literature while applying DEA method to untraditional fields of research. The results from the multivariate analysis suggest that board size and board independence are positively related to firm technical efficiency only when SOEs are exposed to market discipline. In other words, product market competition is a precondition for boards to be effective.

Governance–Performance Relationship: A Re‐examination Using Technical Efficiency Measures

The objective of this study is to analyse further the governance–performance relationship while improving on two methodological issues: control for endogeneity and firm performance measurement. To mitigate the endogeneity problem, we first focus on subsamples of firms for which we ex ante expect better corporate governance to cause better performance. Second, we use generalized least squares regressions for panel data. To control for potential measurement bias, we measure firm performance using data envelopment analysis (DEA). The research is conducted in Canada over a five-year period from 2001 to 2005. Corporate governance is measured based on the Report on Business corporate governance index published by the Globe and Mail. Overall, the results show that better governed firms are more efficient. This study is in line with a growing number of recent studies that propose alternative measures of firm performance. By using DEA, this study brings together the corporate finance and productivity literature.

The impact of the corporatization process on the financial performance of Canadian state‐owned enterprises

State‐owned enterprises (SOEs) have been described as being inefficient and losing money. The theories pretend that private property rights will solve the problem. In practice, SOEs are reorganized to follow the model of the private firm, a period known as the public sector corporatization. One critical element of this reform is an important modification of the mission of the firm away from social and toward profitability goals. Most SOEs become profit‐seeking organizations. The objective of this study is to examine the impact of the corporatization process on the financial performance of SOEs. From the Financial Post 500, we selected the largest SOEs in Canada. For each firm, the critical year of the mandate revision has been set as the beginning of the corporatization period. We covered the years between 1976 and 1996. The performance is measured from a multi‐criteria approach including measures of profitability and productivity. The results suggest that the financial performance of SOEs improves significantly when firms are corporatized. Therefore, the main difference in the financial performance is caused by the difference in the objectives of the firm, not the property or some dubious political activities.

The Performance of State-Owned Enterprises Revisited

Many theoretical and empirical studies look at the ownership-performance relationship. So far, the literature in finance and in accounting mainly refers to the property rights, agency and public choice theories. Despite the fact that the results of these studies are more or less conclusive, it is usually considered that the private enterprise performs better than the state-owned enterprise. In this article, we argue that these studies suffer from one major limitation. They do not recognize that the goals of the state-owned enterprise are different from the ones espoused by the private firm. Using a sample of state-owned entreprises and private firms for the period 1976-1996, we present empirical evidence that the state-owned enterprises, when their main goal is to maximize profit, perform as well as the privately owned enterprises. Therefore, the alleged under-performance of the state-owned enterprises may only be the result of pursuing other goals while the poor quality of public managers may be another urban myth.

US Market Integration and Corporate Governance Practices: evidence from Canadian companies

The objective of this study is to investigate further the interplay between market globalisation and corporate governance practices. The study is conducted in Canada using a sample of 230 firms listed on the TSX in 2002 and ranked by Report on Business (ROB ) on a set of corporate governance best practices. The ROB corporate governance index is built around four categories, namely board composition, compensation, shareholder rights and disclosure. The interaction of the sample companies with the US markets is analysed on the three following dimensions: financial market, product market and multi-markets (combining financial, product and labour markets). Overall, our results show that greater US market interaction is associated with higher corporate governance ratings. Copyright (c) 2007 The Author; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Convergence of corporate governance practices in the post‐Enron period: behavioral transformation or box‐checking exercise?

Purpose – The objective of the study is to analyze corporate governance practices of Canadian companies in the post‐Enron period. The attempt is to investigate whether the convergence phenomenon evidenced in prior studies is limited to the minimum mandatory requirements imposed by regulators or reflects a real behavioral transformation.Design/methodology/approach – Changing governance structure might be slow except in times of financial crisis, increased public scrutiny and reforms. These conditions are met in the post‐Enron period (2002 to 2005) where major reforms have been launched including the Sarbanes‐Oxley Act (SOX) in the USA and Bill 198 in Canada. The authors expect changes in corporate governance to be more important during this period, therefore, enhancing the robustness and reliability of their results. They measure corporate governance on a global scale, relying on the ROB index published by the Globe and Mail. The index distinguishes between four blocks of corporate governance, namely, boar...

Corporate ownership and governance practices in Canada: a longitudinal study

The objective of this study is to analyse convergence of corporate governance in Canada in a period characterised by high financial uncertainty (1999-2008). The methodological strength of this study resides in the combination of a longitudinal approach with a multilevel analysis, focusing on both governance practices and ownership structure. Our results show that ownership structure and control did not change over time. Canadian firms remained controlled by an ultimate shareholder who often is in a position to enjoy all of the private benefits of control while internalising only a small fraction of the costs. However, corporate governance practices converged toward a US model over the period under investigation, overall lending support to functional convergence, not formal convergence.

Monitoring function of the board and audit fees: contingent upon ownership concentration

Purpose The aim of this paper is to revisit the board independence–audit fees (BI–AF) relationship while taking into account the ownership structure of the firm. Two effects are unfolding along the ownership concentration spectrum: separation of ownership and control (principal–agent problems) and separation of voting and cash flow rights (principal–principal problems). Design/methodology/approach The study is conducted over a seven-year period (2002-2008) using panel regressions on a sample of Canadian publicly traded companies. The authors use a moderated regression analysis incorporating two-way interactive terms (ownership × BI) and a sub-group analysis. Findings The results show a positive and significant relationship between BI and AF when ownership is concentrated in the hands of a dominant/controlling shareholder. The higher the gap between voting and cash flow rights of the ultimate owner, the stronger the relationship between BI and AF. Overall, evidence supports both the demand-based perspective on AF and the expropriation effect argument. Practical implications Results support a one-size-fits-all approach to governance despite growing concerns from academics and interest groups about the appropriateness of pursuing such strategy when ownership is concentrated in the hands of a dominant/controlling shareholder. Originality/value By taking the excess voting rights into account (difference between voting rights and cash-flow rights of the ultimate owner), the authors propose a refined classification of the sample firms along the ownership concentration spectrum.

Dominant shareholders, excess control and audit fees in Canada

Public firms throughout the world tend to be controlled by large shareholders who possess significant control rights in excess of their cash-flow rights (excess control). Extensive evidence suggests that concentrated ownership structures and excess control entail large agency costs. However, little is known about the impact of the presence of dominant shareholders on the pricing of audit fees. The objective of this paper is to address this issue. Using a panel of 242 S%P/TSX Canadian firms over the period 2002-2008, we document a positive association between excess control and audit fees while disentangling the effects of both ownership concentration and family ownership. We also document that excess control primarily impacts on audit fees over and above the effects of ownership concentration and/or family ownership. Furthermore, we find that the different sources of excess control, dual-class shares and pyramids, have different impact on audit fees.